Case study on electronic air valve

1. Deloitte Maverick
The Raptors
LIBA Chennai
Tanmoy Porel
Ritaban Sengupta
Rohit Bhattacharya

2. Executive Summary
ABC Filters is an oil and air filter manufacturer which comes under the umbrella of its parent
company which is basically an auto parts manufacturer. It has presence with considerable
market share all over the world i.e. Europe, Middle East, Africa, North America, Latin America
and Rest of Asia. Through research ABC filters realised the importance of clean air in natural gas
production technology. Air filter technology plays a crucial role in power generation industry
due to the requirement of clean and contaminant free air.
ABC filters aims to provide a comprehensive world class filtration products and services and
emerge as a filtration solution provider. ABC strives to deliver value to customers by providing
cutting edge filtration solution for better lives. Keeping this is in mind ABC filters have developed
world’s first grade gas turbine filter with self-cleansing mechanism – E10. This breakthrough
product will minimise loss by efficiently generating electricity in harsh weather conditions
through reduced turbine cleaning downtime.
ABC filters is looking forward to introduce the revolutionary product as well as provide associated
services to natural gas power generation market, through it’s long filter servicing expertise.
Since natural gas electricity generation is a huge, constantly growing market (high CAGR), the
company wants to gauge the market size of its filters globally. ABC Filters also wants to analyse
the market attractiveness of cartridge synthetic GT filters to develop strategy for its new and
better entrant i.e. E10. Since industrial filter derives its demand from other related industries,
the demand is easily affected by local and global economic and business trends. Taking all the
macro and micro factors into consideration, ABC Filters wants to develop a sound, efficient,
sustainable and practical strategy for tapping lucrative markets which promise high growth.

3. Market Overview
World Market
Total amount of
natural gas
consumed in the
world = 93892
Billion Cubic Feet
Conversion
Factors used:
•
•
1 Billion Cubic
Feet = 1.03
Trillion BTU
1kilowatt hour =
3412.14163 BTU
Subsegment





32.87 % of natural gas is
used for electricity
generation i.e. 30862.3
Billion Cubic Feet
Equivalent Amount of
Power Generated in one
year using natural gas =
1062787 MW
Average Number of filters
(panel +cartridge) per MW
of power generated per
year = 11.75
Therefore size of gas
turbine filter market =
12487748 filters per year
Transport
3%

Addressable market for the
client’s product (cartridge
synthetic filter subsegment)
= 2391947 filters per year
The calculation has been
made taking into
consideration the filter
lifetime for the subsegment
is 24 months
Natural Gas Consumption
Power
33%
Building
25%
Industrial
39%

4. Market Attractiveness
Decision Matrix
High CAGR
Middle
East, Afri
ca
Brand
Development
Index (BDI) =
(Percentage of total
sales in market)
(Percentage of
demand in market)
Latin
America,
Rest of
Asia
North
America
Europe
Low
BDI
Low CAGR
Market Prioritization
Priority
Market
Decision Variables
High CAGR : The market has high
growth potential
Low BDI : Low market
share, untapped market
High
BDI Arid Climate : High Value
Proposition
Target Market : Therefore Middle
East and Africa are attractive
markets as the market potential is
good but the market coverage is
still low (Low BDI, High CAGR)
5-Year
CAGR
10-Year
CAGR
BDI
Climate
5
Europe
2.4%
1.1%
4.1
Marine
1
Middle East
8.1%
4.7%
0.3
Arid
3
Rest of Asia
5.2%
4.5%
0.9
Mixed
2
Africa
7.3%
5.0%
0.3
Arid
6
North America
0.4%
0.4%
0.6
4
Latin America
4.3%
3.8%
2.1
Mixed
Humid
Subtropical

5. Macro Trends
Positive
 International Energy Agency forecast : Natural Gas
is the only fossil fuel whose energy mix is expected
to grow from 21% in 2010 to 25% in 2035
 Demand : Energy demand growth in China,
displacement of coal-fired and nuclear power, and
the displacement of some oil products in
transportation
 Supply : Unconventional
gas boom and the growing
role of liquefied natural gas
(LNG)
 Massive increase in use of
natural gas for
transportation coupled
with slower growth in
global nuclear power
(please refer the graph)
 The introduction of new
unconventional energy
supply has increased
estimated resource life to
more than 200 years from
50 to 60 years worth of gas
a decade ago
Negative
 A slow growth in GDP for China may adversely
impact trade flows, aid and investment flows as
China is a crucial economic partner for Gas
business
 Rivalry from new supplies of energy e.g.
conventional, unconventional, liquid natural gas,
gas to liquid
 Technological
breakthrough for
alternative/renewable
energy resulting in the
generation of costcompetitive non-fossil
fuels
 Mega-project
investment
requirements may limit
opportunities for smaller
players; mega-projects
also frequently subject to
delays and cost over-runs
so prospect of being
limited to big players
only is high

6. Positive
Micro Trends
 African gas reserves are about 7.5% of the world’s total. Technically recoverable
Graph 1
reserves of natural gas in Africa are substantially higher, estimated to be about 74
trillion cubic metre, almost 10% of the world’s total
 Gas consumption in Africa has been growing at a rate of about 6% per year since
2000 with the figure expected to rise to 9% with the emergence of South Africa as
one of the leading economies of the world (Graph 1)
 Gas production in the Middle
East and North Africa has
increased considerably in the
Graph 2
last 10 years, in contrast to oil
production. For some
countries (Saudi
Arabia, United Arab Emirates
Graph 3
and Iran), this increase has
been focused solely on
meeting strong growth in local
demand, whilst for others
(Qatar, Algeria and Egypt), it
has been a matter of boosting
gas exports
 Increasing population, higher
Negative
standards of
living, accelerated growth of  Both the regions of Africa and Middle-East are
energy-intensive industries
characterized by political instability, failure to
(cement, aluminium, petroche develop fair and stable fiscal/legal regimes, and
micals, etc.) and highlypoor investor’s perception about business culture
subsidise energy prices have
 There is a need for long-term contracts to underpin  Based on a survey by EY the degree to
led Middle Eastern demand
which investors face punitive and/or
massive investment in a gas project, but increasing
for gas almost doubling
unpredictable taxation in Africa and
reluctance of buyers to do in unstable economic
(Graph 2 & 3)
Middle-East are particularly high
and political scenarios particularly after “Arab
compared to other parts of the world
Spring” resulted in a dichotomous situation

7. Value Proposition
Value = Benefit - Cost
Benefit
Cost
Operational Continuity
Cost
Mean turbine capacity(in MW)
No of Filters reqd (per annum)
Price in USD ($)
Total Cost in USD ($)
Benefit #1
Downtime (in hrs per year)
Capacity
Loss (in MW)
Loss (in kWh)
Loss in USD ($) per year
E9
60
170
3.4
27763763.42
1665825.805
E10
20
170
1.7
13881881.71
832912.9025
E12
300
170
6.8
55527526.84
3331651.61

Average
loss in
power
Loss in
MW
Loss in
USD ($)
Uptime
Climate
Marine
Arid
Humid
Marine
Arid
Humid
Marine
Arid
Humid
E9 (cartridge+
synthetic)
E10 (cartridge+
synthetic)
E12 (panel+
synthetic)
98
99
96
5%
2%
4%
8.33
3.332
6.664
40812732.22
16325092.89
32650185.78
5%
2%
4%
8.415
3.366
6.732
41229188.68
16491675.47
32983350.94
2%
5%
4%
3.264
8.16
6.528
15991927.73
39979819.32
31983855.46
E10
170
5
330
1650
E12
170
15
100
1500
Values*
Efficiency
Benefit #2
E9
170
5
300
1500


The Price is highest for E10 in
comparison to E9 & E12
But the price difference is
compensated by the
operational continuity and
efficiency
The efficiency obtained is
maximum when the climate is
Arid, hence our target market
(Middle East & Africa)
*Assumptions
•
E9 – cartridge synthetic, E12 – Panel synthetic (based
on the filter price)
•
Mean Turbine Capacity is 170 MW

8. GTM Africa
Post Launch
Pre - Launch
• Telescopic Marketing for derived demand
(developing Natural gas electricity
High Risk, High
business which in turn consumes air filter
manufactured by ABC Ltd)
Growth
High Growth Market • Host a conference on ‘Africa’s future
energy needs’ with an objective to
• The projected 5-year
create an economical affixation between
CAGR is 7.3% Y-O-Y
growth
the individuals responsible for any
• Brand Development
business to prosper. So, invite:
Index (BDI) is 0.3 –
• Key players in the natural gas
untapped potential
energy production business
High Risk Market
• Investors likely to invest in such
• Approx. 1% od ABC
related industries
Ltd’s sales comes from
• Advantages:
Africa: not yet
penetrated, underlying
risk cannot be
underplayed
* Filter servicing and
Maintenance is
outsourced to nullify the
advantage competitors
have.
•
•
•
•
• In the electricity generation from natural
gas business, 60% of the cost of
electricity generated is contributed by
the raw material itself(natural gas)
• Therefore we can show case our value
proposition: E9 has the minimum loss in
the specific African climate (arid)
Understanding the future customers
Enhancing brand visibility
Launch
Strategy employed: Strategic Alliance
• In areas of high risk and low initial
penetration, association with
competitors (which actually forms
48% of sales by customer type)
and/or partners will be planned
Personal Selling to create awareness
about the prospect, benefit and
usages of natural gas in untapped
areas
Act as an energy consultant in areas
like Beaufort West in South-Africa or
Papua New Guinea where prospect
of natural gas is immense but lack of
awareness and policy paralysis has
prevented utilization of it to the
maximum level
•
Outsourcing filter-servicing and Gas
turbine maintenance*
• Customer retention is equally important
as customer creation. So, filter- servicing
and Gas turbine maintenance (which is
6% of Client 2012 sales by customer
type) would be outsourced to some
company of expertise and repute

9. GTM Middle East
ABC as a brand has already got presence in middle east
Fragmented Market


Moderate Risk, High
Growth
High Growth Market
• The projected 5-year
CAGR is 8.1% Y-O-Y
growth
• Brand Development
Index (BDI) is 0.3 –
untapped potential
High Risk Market
• As ABC Ltd. already
has an existing market
capitalization of 8%
hence it is considered to
be moderately risky


Middle East : Fragmented Market
Contributes 30.1% of 60-120 MW generation capacity wrt the total world
market
Contributes 41.4% of 120-180 MW generation capacity wrt the total world
market
In developed economies 58.1% of turbine installations are over 180 MW
(e.g. North America)
Strategy Employed
The best strategy to tap into a fragmented market is through an efficient distributor
network
 Personal selling and direct marketing is not economically feasible when large
number of small exists
 Finding a channel partner
― Proper channel research conducted by a qualified agency with a local presence is
critical if investment in product development, promotions and pricing strategy is
not to be wasted
― When it comes to international expansion, nothing is as important as getting the
channel right, and channel research therefore plays a crucial role in helping
companies to take the right decisions on their distribution channel strategies
 Facilitating the Channel Partners
― As for efficient functioning and smooth operation of distributors, company
involvement is crucial hence we plan to provide free training to distributor sales
force to keep the constantly involved in the penetration and growth process

10. Connecting the Dots
• Not considering North America (slow growth 0.4%)
• Not considering Europe & Latin America – saturated market (high BDI)
High CAGR, • High switching cost : new product for growing market
Low BDI
• Average loss in power generation
• Arid (2%),
• Marine (5%)
Arid Climate
• Humid (4%)
•Macro : Natural Gas - Only fossil fuel grow at 4%l which is expected in 25 years
•Micro
Macro/Micro •Africa’s natural gas reserve is 74 trillion cubic metre (10% of world’s natural gas reserves
•Middle East : Gas production increased (wrt oil) in last 10 years
Trends
Value
Proposition
Target
Market
• High cost but
• low downtime
• low replacement rate (wrt E12)
• Middle East
• Fragmented market : Distribution Network
• Africa
• New Market : Strategic Alliance

11. Appendix (1/8)
• Slide 3 : Market Overview
– To size the market according to ABC’s presence, we calculated natural gas consumption of each
of the regions mentioned in the case study and based our calculations on their total aggregate
consumption of 93892 Billion cubic feet (as mentioned in the slide)
– Conversion Factor for Billion cubic feet to BTU (British Thermal Unit):
•
1 Billion cubic feet = 1.3 Trillion BTU
– Conversion Factor for BTU to kWh :
•
1 BTU = 0.00029307106944 kWh
– To change kWh (unit of energy) to kW (unit of power) we divided annual energy consumption
kWh by 8765.81277 (total number of hours in a year)
– 32.87 % of total natural gas consumption is used for electricity generation*, which gave us the
natural gas consumption for electricity generation for each region e.g. for Europe :
•
•
Natural Gas Consumption = 18909 Billion Cubic Feet = 651158.25 MW
Natural Gas Consumption for electricity = 32.87 % of total natural gas consumption = 214035.72 MW
– Average No. of filters per MW of power generated = Average (10,15,12,10) = 11.75
filters/MW/Year
– Thus the number of yearly filters requirement for Europe = 2514919.66 (12487748 filters per
annum for the world)
– Given, install base for cartridge synthetic (target subsegment) GT filter for Europe is 20% of
the total filters required for Europe
– Thus Average annual cartridge synthetic filter required for Europe = 502984
– Similarly cartridge synthetic filter requirement for each region is calculated and the total
requirement is calculated (4783893.5 filters)
– Since the filter lifetime is 24 months, the annual requirement is 2391947 filters
*http://www.eia.gov/

12. Appendix (2/8)
Complete Calculation
Region
Natural Gas
Power
Energy equivalent
consumption in
generated in
in kWh
Billion Cubic Feet
MW/year
Europe
Middle East
Rest of Asia
Africa
North America
Latin America
Total (world)
18909 5707931277602.19
14096 4255063688671.03
22000 6640990433510.40
3781 1141344764959.22
29913 9029633947163.48
5193 1567575605509.98
93892 28342539717416.30
651158.2471
485415.7624
757601.2183
130204.1003
1030096.602
178828.3239
3233304.254
Electricity
generated
No. of filters
% Cartridge
from natural
required Synthetic Turbine
gas per year
(in MW)
214035.7158 2514919.661
20%
159556.1611 1874784.893
60%
249023.5204 2926026.365
30%
42798.08776 502877.5312
30%
338592.753 3978464.848
50%
58780.87007 690675.2234
20%
1062787.108 12487748.52
Total
cartridge
synthetic
filters
502983.9322
1124870.936
877807.9095
150863.2594
1989232.424
138135.0447
4783893.506
For Slide 3 : Market Overview

13. MIDDLE EAST
Appendix (3/8)
Table: Natural Gas Overview 2011 (Billion Cubic Feet)
Production Imports
Exports
Consumption
Middle East
17780.07842
1146.60742
5212.84715
14096.47666
Iran
5360.817
373.98585
319.60075
5415.2021
Saudi Arabia
3258.1619
0
0
3258.1619
United Arab Emirates
1847.25702
615.8936
182.9317
2662.85695
Qatar
4705.0175
0
4015.3155
689.70195
Oman
936.5538
68.86425
385.99295
619.4251
Kuwait
477.9179
24.29672
0
502.21462
Bahrain
445.6753
0
0
445.6753
Syria
277.92905
8.82875
0
286.7578
Israel
91.819
25.4268
0
117.2458
Jordan
8.12245
29.31145
0
37.4339
Iraq
31.0772
0
0
31.0772
Yemen
339.7303
0
309.00625
30.72405
For Slide 3 : Market Overview
Source : U.S. Energy Information Administration

14. Appendix (4/8) For Slide 3 : Market Overview
AFRICA
Table: Natural Gas Overview 2011 (Billion Cubic Feet)
Production Imports Exports
Consumption
Africa
Egypt
Algeria
Nigeria
South Africa
Libya
Tunisia
Equatorial Guinea
Cote dIvoire (IvoryCoast)
Congo (Brazzaville)
Tanzania
Ghana
Angola
Mozambique
Morocco
Cameroon
Gabon
Senegal
7123.52991
214.0089
3556.6796
3780.85922
2163.3969
0
371.16065
1792.23625
2922.91661
0
1836.98036
1085.93625
1107.4784
0
916.7774
190.701
45.2032
116.5395
0
161.7427
277.39932
0
129.46479
147.93454
68.15795
62.8607
0
131.01865
242.9672
0
185.7569
57.2103
52.9725
0
0
52.9725
40.61225
0
0
40.61225
30.3709
0
0
30.3709
0
29.31145
0
29.31145
26.55688
0
0
26.55688
134.9033
0
116.5395
18.3638
2.1189
5.29725
0
7.41615
5.29725
0
0
5.29725
2.47205
0
0
2.47205
0.7063
0
0
0.7063
Source : U.S. Energy Information Administration

15. Appendix (5/8)
•
Slide 4 : Market Attractiveness
– CAGR : Compounded Annual Growth Rate
– BDI (Brand Development Index) =
(Percentage of total sales in market)
(Percentage of demand in market)
– BDI Calculation (Example : Europe)
•
•
•
Percentage of total sale in market = 43% (from the case study)
Percentage demand in the market =
– Demand of cartridge synthetic filters in Europe / Demand of cartridge synthetic filters in the
world = 502984 / 4783893 (from Appendix 2/8) = 11%
BDI = 43% / 11% = 4.1
Sales (in
CAGR 5 years CAGR 10 years
%)
Europe
Middle East
Rest of Asia
Africa
North America
Latin America
Total
2.4%
8.1%
5.2%
7.3%
0.4%
4.3%
1.1%
4.7%
4.5%
5.0%
0.4%
3.8%
43%
8%
16%
1%
24%
6%
Total cartridge
synthetic GT filter
demand
502983.9322
1124870.936
877807.9095
150863.2594
1989232.424
138135.0447
4783893.506
Demand
BDI
(In %) (Sales/Demand)
11%
24%
18%
3%
42%
3%
100%
4.089741393
0.340227015
0.871970909
0.317101296
0.577174606
2.077920277

16. Appendix (6/8)
• Slide 7 : Value Proposition
High Efficiency Filter consideration set
E9
E10
E12
Market status
Available
Testing
Filter price
Available
$300
$330
$100
– As E9, E10, E12 are compared under High Efficiency Filter segment,
assumption has been made that they are filters under same category i.e.
synthetic filters
Cell
Key Filter Statistics
Cartridge
Cell
Synth
Panel
Synth
No. of filters per MW of power
generated
10
15
12
10
Filter lifetime (months)
Avg. Price
8
80
12
100
12
100
24
300
– Now based on the Average price given we made the following
assumptions:
• E9 and E10 are of cartridge synthetic type
• E12 is of panel synthetic type

17. Appendix (7/8)
•
References
– http://www.b2binternational.com/publications/articles/distributor-research/
– http://www.b2binternational.com/publications/articles/market-intelligence-for-internationalorganisations/
– http://www.b2binternational.com/publications/white-papers/alliances-joint-ventures/
– http://www.booz.com/media/file/New_B2B_Marketing_Imperative.pdf
– http://www.misrc.umn.edu/workshops/2003/spring/Dai_013103.pdf
– http://www.thecasecentre.org
– Natural gas in Africa: the frontiers of the Golden Age - an EY initiative
– Panorama 2012 : a look at the oil and gas producing countries of North Africa and Middle East
– www.eia.gov
– http://www.cedigaz.org/surveys/annual_surveys.html
– http://www.indexmundi.com/g/g.aspx?c=in&v=137
– http://www.hilliardcorp.com/products/hilco/filter-cartridges.aspx
– http://www.ccithermal.com/productDocumentation/Natural_Gas_Brochure.pdf
– http://www.clarkreliance.com/site/anderson_filtrationelem.asp
– http://www.clarkreliance.com/site/products_filtra_elem.asp
– http://www.gravertech.com/markets_power_04.html
– http://www.precisionfiltration.com/products/gas-filter.asp
– http://www.di550.sandvik.com/?page_id=226
– http://www.metronco.gr/projects/en/natural-gas-projects/hp-network/grs-for-powerplants/natural-gas-high-pressure-filtering-regulating-station-for-power-generation-unit/

18. Appendix (8/8)
•
References
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
http://www.ge-flexibility.com/static/globalmultimedia/flexibility/documents/Air_Filtration_GE_Launches_New_Inlet_Filter.pdf
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http://www.aftermarketsuppliers.org/Councils/Filter-Manufacturers-Council
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