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ElSewedy Electric Wires & Cables Industry Analysis Presented to Dr. Amira Saleh Prepared by Bahgat Mahmoud Maged Attia Omar Ghareeb Mohamed ElBanna Mai Ashmawy
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ElSewedy Cables

Nov 21, 2015

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ElSewedy Electric - Wires & Cables Industry Analysis

ElSewedy Electric Wires & Cables Industry AnalysisPresented to Dr. Amira Saleh

Prepared byBahgat MahmoudMaged AttiaOmar GhareebMohamed ElBannaMai Ashmawy

1IntroductionCables Manufacturing industry is one of the most important industries in Egypt due to the increase in governments' spending on infrastructure to attract more investments.

Companies in this industry manufacture wires, cables, and cords. IntroductionEgypt is now considered to be one of the largest countries in manufacturing and exporting of those products.

However, the recent Arab spring and the related political crisis in the region have impacted some of the ambitious power projects, existing ones as well as those in pipeline.

Further, a surge in cable capacity in the region has overtaken demand in the recent past.Market structureCable industry has the following structure characteristics: Few # of major players.Products are identical or differentiated.High barriers to entry & exit.

Industry TypeCables industry is a Production Industry.

ElSewedy cables is specialized in the three stages:Manufacturing.Wholesalers.Retailers.Local Market SharesMajor local players:ElSewedy Cables.Giza Cables.Electro Cables.International Cables.Others.

Market SharesMajor International Players:ElSewedy Electric.Elloumi Group.Energya.Nexans.General Cable.Others.

Company BriefThe ElSewedy family began what is today ElSewedy Electric in 1938 as an electrical equipment trading company.

In 1960, after developing deep market understanding and local presence, the company became Egypts first specialized cables distributor.

In 1984, Arab Cables as the company was then called built the countrys first private sector cables factory. Company BriefThe event marked the beginning of ElSewedy Electrics corporate identity.

ElSewedy is not only focusing in local market but also in GCC, MENA region, and Europe.

It maintains 30 production facilities in 15 countries.

It exports to 110 countries worldwide.

Ownership StructureMacro environmental factors(PESTEL)Political Factors:The electric cables industry in Egypt experienced a slowdown in sales throughout 2013 4th quarter with respect to the same quarter in 2012 due to the political instability and uncertainty in Egypt.

ElSewedy cables experienced a decline in sales due to labor protests and the political situation leading to a decrease in gross profit in Q4 2013 decreased by 17% to reach EGP 388 million versus EGP 470 million in Q4 2012.Macro environmental factors(PESTEL)Economic factors:The economic situation of world can also affect the industry as rising inflation rate make the cost of manufacture high and thus reduce the profit margin of the industry.

The core inflation rate in Egypt was recorded by the central bank of Egypt at 9.11 percent in April of 2014. Decreased from 9.90 percent in the previous month.

14Macro environmental factors(PESTEL)An increase in the prices of fuel and electricity is expected due to the new government direction to change the current energy subsidies system, which will affect all companies operating costs including ElSewedy.

Exports (Raw materials) from foreign markets leading the company to be exposed to High foreign exchange risks.

USD exchange rate increased to 7.11 EGP but the prices of cables industry imports wasnt really affected by this increase due to the decline in prices of copper worldwide.Macro environmental factors(PESTEL)Social factors:Population size: The Egyptian population at home increased to reach 86 million.

The continued dramatic increase in the population pushes the government to increase its spending on the development of infrastructure in Egypt.Macro environmental factors(PESTEL)Such development will increase the demand on the electric cables industry in Egypt as it is a basic need in a lot of infrastructure projects.

Age Demographic Segmentation: Since 60% of Egypt's current population lies between 15 54 years old, this segmentation guarantees a strong current and future development projects.Macro environmental factors(PESTEL)Technological factors:Electric cables industryuses themost advancedcosteffective andcleantechnologyin production.

ElSewedy developed an understanding of which core technologies to master and make aggressive investment in these opportunities.Macro environmental factors(PESTEL)Environmental factors:Law 4/1994 obliges any factory to conduct an environmental impact assessment even before its established; many international standards have been imposed to guarantee the factories commitment to health and safety principles.

But the reality that till now the Environment Ministry fails to enforce this laws.Macro environmental factors(PESTEL)Legal factors:Tax law: The corporate tax rate in Egypt is relatively lower than the world average. Which make it less expensive for producers to produce in Egypt in terms of tax rates.

Egypts new constitution, ratified on 18 January 2014, Article 238 obliges the state to reach international spending rates by a specific time the amendments increase the spending rates to 3% for health, 4% for education and 1% for scientific research.Micro environmental factors (Michael Porter 5 factors model)Micro environmental factors (Michael Porter 5 factors model)Bargaining power of suppliers: (LOW RISK).Too many suppliers.Inputs have no close substitute.Few major players in the existing industry.

In order to minimize the bargaining power of suppliers ElSewedy is self supplier through (backward integration) to improve its profit margin and its market share through lower costs, they internally produce a wide range of raw materials. Micro environmental factors (Michael Porter 5 factors model)While ElSewedy currently exhausts all of its in-house production of copper rods, the utilization of raw steel and PVC has been hovering in the 80% range, which enables the company to sell its excess capacity to third parties.

Over the medium term, ElSewedy aims to be able to increase its production capacity for cables as to use up to 100% of the raw materials it manufactures.Micro environmental factors (Michael Porter 5 factors model)Bargaining power of customers: (HIGH RISK).Too many customers: Energy & Infrastructure, Industry, Buildings & Residential.Few major players.

In order to minimize the bargaining power of customers ElSewedy is self distributor through (forward integration), they Sole Distributor for their products through ElSewedy electrical equipments & cables Co. & Authorized Distributor Gabriel Stores Down Town.Micro environmental factors (Michael Porter 5 factors model)Despite of the vertical integration & due to the recent political crisis in the region, the short term appears less bright than the medium to long term.

The current oversupply along with the weaker demand in countries affected by the unrest leaves regional cable producers vulnerable to the relatively higher bargaining power of customers, therefore ElSewedy and other regional players lack pricing power.

Micro environmental factors (Michael Porter 5 factors model)Barriers to entry: (LOW RISK).Absolute cost structure:Learning experience curve & know how are very high due to long existence in the market.

Brand loyalty:Its high due to the products quality, the Brand name known worldwide.

Economies of scale:Due to existence since 1938 they eliminated the risk of the high fixed cost by the excessive production.

Micro environmental factors (Michael Porter 5 factors model)Threat of substitute industries: (LOW RISK).No substitute industries which lower the industry risk as a whole.Intensity of competition: (MODORATE RISK).Few major players.Close substitutes to each other.High fixed cost.Low rate of demand.

Micro environmental factors (Michael Porter 5 factors model)ElSewedy faces competition both locally and globally, locally the company has a market share of approximately 55% while globally it is considered the eighth worldwide in market share.7 Risk CharacteristicsCost structure: High operating leverage (HIGH RISK).

Cyclicality: Cyclical industry (MODERATE RISK).

Profitability: High profits in expansion & slightly affected in contractions, due to the exporting business (MODERATE RISK).

7 Risk CharacteristicsDependence: Supply side: Cooper prices very volatile (HIGH RISK).Demand side: Diversified base (LOW RISK).

Substitute:Product: Too many players (Local & international) (HIGH RISK).Industry: No substitute industries (LOW RISK).7 Risk CharacteristicsRegulations: Control the business environment political & economic are instable (HIGH RISK).Cables Industry: company is enforcing high level of regulation to maintain worldwide standards acceptance (LOW RISK).

Product life cycle: Matured stage (LOW RISK).ConclusionDespite the high risk factors but overall the company is market leader locally & highly ranked internationally.

The new green building concept adopted by ElSewedy will give it a competitive edge over its competitors & its the new trend worldwide to adopt healthier environment.

Thank you