Promptec Renewables: from inception to acquisition in a hypergrowth market

Focusing on customer niches helps bring a disruptive innovation to market

The LED (Light emitting diode) lighting is a hypergrowth market in India. It overtook the conventional lighting market in India in 2016. In 2017, while the conventional lighting market contracted, the LED lighting market exploded. The LED lighting market is now double the size of the conventional lighting market. Less than a decade back, the LED market was 6% of the conventional lighting market. (Source: statistics published by the Electric Lamp and Component Manufacturers Association). Lighting professionals say that conventional lighting has almost disappeared from the market.

LEDs are semiconductor-based lighting devices. They emit light when direct current passes through them. LEDs replaced compact fluorescent lamps (CFLs), fluorescent tube lights (FTLs) and incandescent lamps. LEDs are more energy efficient than CFLs which are, in turn, far more efficient than incandescent bulbs.

Several startups in India have grown exponentially in this hypergrowth market. Kiran Moras, Nikhil Das and PP Joshy set up Promptec Renewable Energy Solutions in 2008. Havells India, a publicly listed equipment appliance company acquired a controlling stake in the company in 2015. (in 2018, Havells acquired a 100% stake).

I discussed the inception, growth and exit with Kiran Moras, the founder and Managing Director of Promptec. Moras used to work for India’s Information Technology Industry. He had worked with Kanbay, an Indian IT services company, later acquired by Capgemini. He had stints both in the US and UK. He joined Joshy and Das to set up Promptec in 2008. Joshy and Das were already in the business of CFL lighting. Moras brought in cash and professional management ideas.

In the early days, LEDs had few significant disadvantages compared to CFL lighting. They were way too expensive, and the lighting quality was considered inferior. The LEDs tended to emit light in one direction only and the light did not have the same “warm” hues. The LED lights were also unable to withstand the power quality issues in India. They were more prone to failure.

Credit: Promptec

At its inception, Promptec decided to focus on solar lighting for rural areas. Solar panels set up on top of rural homes produced DC (direct current) electricity. The LEDs were thus not subject to the power quality issues. These systems powered the homes of rural customers. Most of them were having electricity for the first time. They did not have demand the same quality standard that the urban customers did. Promptec partnered solar panel manufactures in India with rural off-grid lighting systems. These large companies could then bid for rural electrification projects. In the first two years, solar lanterns, solar charge controllers and solar home lighting solutions were its main products.

The disadvantages of LEDs in the mainstream market were not a bottleneck for the rural lighting market. Indeed, in the rural lighting market, the LEDs had one overwhelming advantage. The use of LEDs brought down the total system cost. In the late 2000s a small solar home system with two CFL lights would cost about INR 40,000 (about USD 800 at the then exchange rates). The cost of the solar panel was half of the cost of the system. The battery contributed to about one-third of the system cost. The light as a proportion of the total system cost was low. The LEDs did not add significantly to the total product cost. On the other hand, they consumed much less electricity. Using LEDs meant that manufacturers could reduce the sizes of the panel and the battery. The costs of the total system came down remarkably sometimes to as much as 50%. The other advantage is that used with DC current produced from solar LEDs were reliable and much longer life. CFLs, on the other hand, had a life of two years. The use of LEDs in solar systems reduced — by a significant amount the cost of acquisition and the cost of ownership.

The solar market was small and Promptec was able to get to a leadership position very quickly. Its customers included all the major solar panel manufacturers of the country: Tata BP Solar (now Tata Solar), HHV Solar Technologies, MicroSun Solar Tech, EMMVEE and Waaree. However, the solar market did not have significant potential for growth. It was dependent on government policies and subsidies. The Promptec focused on street lighting as its next segment. The founders realized that LEDs were viable only in the “high energy high usage” quadrant. Street lights were a good example. Conventional street lights were high wattage: 250W to 400 W. They would burn for about 12 hours every day. The switch to LEDs brought about significant cost saving.

The street lighting business started with a highway project executed for IRB Infrastructure. IRB Infrastructure is India’s second largest road builder. Promptec convinced IRB Infrastructure to use LED lights. The initial project was the highway in Western India connecting Mumbai to Surat. Promptec supplied 12,000 streetlights of 200 W, 120 W and 80 W. In 2013, the company own a big order from the Energy Management Centre (EMC) Kerala. This state government organization tendered the supply of 100 LED street lights each to 65 municipalities in Kerala. Their objective was to showcase the LED lights to these municipalities. Later, EMC Kerala won the Best Performing State Designated Agency Award from the Ministry of Power, Government Of India.

The company encountered more challenges in developing products for the street lighting market. There were two major issues. The conventional street lighting was sodium vapour which gave out a yellow light. It was believed that yellow lights provided better visibility during misty and foggy conditions. LEDs emitted white light. To overcome this perception, the company went back in history. Mercury vapour lights had been used for street lighting before sodium vapour lights. The mercury vapour light was a clear white light. However, sodium vapour lights were more efficient than mercury vapour lights. The perception was caused by the increasing use of sodium vapour lights.

The other problem was not just of perception. The power quality in India’s electricity distribution infrastructure is poor. This makes LED street lights particularly susceptible to failure. The company faced alarmingly large failure rates of streetlights in some rural areas. The company introduced a patented Surge Protection Device to absorb high voltage surges. The protection device also behaves like a fuse isolating the circuit if it cannot absorb the surge.

The focus on streetlighting was critical in the buyout by Havells. Promptec started supplying to large Indian lighting companies such as Osram and Havells. Promptec’s main contact in Havells sold the potential of the deal to his senior management.

There are a few important lessons from Promptec’s growth in the LED market. LEDs were what Prof Clayton Christensen would have called disruptive innovation. LEDs were cheaper to own but their performance was worse than existing products in established markets. They were more expensive to buy, the light they emitted was not good enough and they could not stand up to the vagaries of India’s power infrastructure. LEDs met the other key test of a disruptive innovation. The trajectory of performance improvement of LED lights was greater than what than what the mainstream customers wanted. Performance improvement demanded by CFL lights was flat. On the other hand, LEDs were becoming cheaper and more versatile. Better lenses were being developed to disperse the light more uniformly.

Promptec’s strategy was a copybook imitation of what Prof Christensen would have recommended in his book The Innovator’s Dilemma. The key thing is to find a market for the disruption and not to try and invest in improving the technology to meet the mainstream markets. Managers should align a disruptive innovation with the “right” customers. The right customers are the ones who would value the attributes of the disruptive products. This is exactly what Promptec did by focusing on the solar lighting market. For this market, the product had overwhelming advantages. The disadvantages of the product were not important at all.

Promptec’s experience shows that disruptive innovation starts from small markets. It is only in small markets that a company can — relatively quickly — take on a leadership position. The importance of leadership in narrow customer niches is key. Geoffrey Moore emphasizes it in his books Crossing the Chasm and Inside the Tornado. The solar lighting market was Promptec’s beachhead segment. It is from here that it attacked the adjacent niche of “high wattage high use” segment of street lighting. Here too there was a compelling economic reason for customers to buy. The company made the necessary investments in product development and marketing. This position of leadership made Promptec appealing as an acquisition target.

The series of blogs is based on my experiences in working on the KfW SIDBI Innovation Finance Programme between 2013 to 2015. It was one of the most satisfying periods of my professional life. I worked with a wonderful team of Dr. Jürgen Bischoff, Mikael Henzler, Harsh Kaul, Rakesh Rewari, Rukmini Parthasarathy, Maike Lerch, Ravi Tyagi, Laxmi Narayana, Cosima Strahr and Chinmay Dholakia. These series of blogs are my way of appreciating them and all the inspiring people I met. Promptec took a subordinated debt from SIDBI. Kiran credited Bhanu Prakash Verma, then DGM of the Bangalore Branch and Jhalak Shah for their proactive attitude.