Himal Refrigeration & Electrical Industries
Playing it Cool
While its competitors have entirely shifted their focus to selling imported Air Conditioners, this company is still managing to remain a manufacturer as well.
Though already in its ninth year of existence as a manufacturer of air conditioners and cooling systems, Himal Refrigeration and Electrical Industries has still not been able to make manufacturing its main revenue source. This is despite the fact that its products are well established and at par with foreign products in terms of quality, service and performance.
"Although our company is the market leader in this business with nearly 45 percent market share, we have achieved this mainly by selling AC's that we import," says Vijay Kumar Chaudhary, Chairman of the company. Because of the Nepali consumers' perception that imported products are always superior, sales of the Himal brand ACs have not been so great even when they have been successfully applied for extremely sophisticated operations. "Also to blame is the government attitude," he adds.
According to him, Himal ACs have been used by clients like Nepal Telecom and Mid Marsyangdi Hydropower project for purposes that require a very high level of performance. "We have sold more than 200 AC's to Nepal Telecom to cool important equipment at their towers and they have been working without any problem for years," he says. Moreover, his company has set up cooling systems in most of the banks of Nepal including the Nepal Rastra Bank, Nabil, Himalayan and Everest. On top of that, his company has received ISO 9001:2000 certificate as well. Still, the government as well as non-government clients demand imported ACs, he complains.
Himal was started with the Chaudhary family's private capital of Rs. 10 million in 1998. They thought it was a minimum risk business because even if the products did not sell, they would be with the Himal company itself. The costs too were thought to be low because the company did not require a huge manufacturing facility since most of the important components of the AC like the compressor, evaporator and condenser could be imported. Only the main body is made here by using sheet metals. Chaudhary claims that the imported parts are of high quality and the company issues certificates of guarantee for all its finished products.
“However, Nepali customers think that 'foreign' means 'better'," says Chaudhary, "Only when we get orders from projects, are we able to sell about 200-300 AC's in a single deal. Otherwise the retail sales are about 50-60 units in a year." With low sales, it is difficult to keep the production cost down, thus the margins are minimal. "Foreign companies manufacture thousands of ACs every year, so they have huge economies of scale. How can we compete with them with such paltry sales?" questions Chaudhary.
Because of these reasons, the company is forced to sell imported brands as well. These brands, of which the company is an authorised dealer, include Daikin from Japan, Fujiaire from Malaysia and Blue Star from India. Recently, the company has also started dealing in generators and pump sets as the authorized dealer of FG Wilson (Perkins) of the UK and Kirloskar of India.
Chaudhary claims that Himal's ACs are about 23 per cent cheaper on average than other brands found in the market. ACs from reputed companies like Daikin, the biggest AC company in Japan, are highly expensive - twice as expensive as Himal's ACs in fact. "If the cheapest Nepali AC costs Rs. 40,000 then the cheapest Japanese product would cost Rs. 80,000," says Chaudhary. This difference can rise to tens of millions of rupees for bigger ACs.
But now cheaper Chinese ACs have started entering Nepal and they are giving Himal additional competition. Their impact has not been only on Himal. There were about six other companies manufacturing AC till a few years ago, now all of them except Himal have stopped manufacturing and become importers and installers.
However, Chaudhary's complaint is not so much with the ordinary customers as it is with the government. Chaudhary says that even the government does not really care for Nepali products. When government agencies call for tenders, they normally specify foreign brands in their requirements. "There was a government agency that called for a bid without specifying any brand. We won that contract on the basis of low cost and good quality. But when the same agency called for another bid, it then specified a foreign brand. So we had no chance," he complains. He further adds that the government could help Nepali industries by putting high barriers for foreign products. "Look at India. They put high barriers on foreign products even if their domestic products were not of good quality. As a result, their domestic companies developed and now they are thriving."
So why is Himal still in manufacturing? "This is just to maintain our brand name," responds Chaudhary. But he hastens to add that by remaining in manufacturing, his company has one clear advantage. Himal can manufacture ACs for non standard use. For example, all the ACs of 220 volts come in 1, 1.5 or 2 tonnes. So, a 1.5 ton AC of three phase electrical current cannot be bought in the market. "We can take this type of order and manufacture the desired AC, that also with a quality assurance certificate," emphasises Chaudhary again.
His company has six distributors throughout the country located in Kathmandu, Biratnagar, Birgunj, Pokhara, Nepalgunj and Chitwan. Chaudhary explains that the key to success in selling ACs is the technical expertise that a company has. "Each and every part of this business needs technical backup. So we have to spend about 25 per cent of our revenue on the technical area. It is not only about sales. We have to service and maintain ACs that we sell."
Himal currently employs 45 people but this number can go up to 80 when manufacturing orders increase. Chaudhary says that finding technical people for the company has been getting easier because of the increasing number of engineering graduates in the country.
