* Govt to build $174 bln infrastructure projects
* 5 top firms average EBITDA growth above 20 pct
* Shares of 5 top firms have risen 23 pct on avg in 2013
* Industry hurt by pricing wars, falling rupiah
By Janeman Latul and Fathiya Dahrul
JAKARTA, Aug 26 (Reuters) - Indonesia may lose three-quarters of its power cable makers in the next two to three years as thin margins drive weaker players to accept buyouts, leaving a handful of larger companies to feed the fast-growing economy's electricity demand.
Cable industry revenues in Southeast Asia's biggest economy rose to around $2.5 billion last year, up 20 percent from a year earlier but still tiny compared with larger emerging market such as China or India.
Indonesia has earmarked $174 billion for infrastructure development over the next 12 years, and about 40 percent of that will go to building power and energy projects in the power-starved archipelago where nearly a quarter of the population lacks basic electricity.
But there are more than 20 major Indonesian cable makers battling for a slice of the market, pushing down margins. The sliding rupiah currency, which hit a four-year low last week, adds to the strain because these companies must buy copper and aluminum, priced in U.S. dollars.
"It's a dog fight," Heru Gondokusumo, chief executive officer of cable maker PT Voksel Electric told Reuters. "The growth is there but if things stay like this then we should see a consolidation among market players over the next two to three years."
Net margins across the industry soared to an average of around 5 to 6 percent last year from 2 to 3 percent five years ago, according to two industry experts. But they have fallen back this year due to a price war. Some smaller companies have recorded margins as low as 2 percent.
RAMPING UP
Gondokusumo said Indonesia's demand for power is typically double the rate of economic growth, which is expected to clock in at about 6 percent this year.
"Therefore, despite the fierce competition, we plan to increase our copper and aluminium cable production capacity to meet the rising demand," he said.
Voksel is the market leader in aluminium-based cable and is planning to increase its annual capacity to 30,000 tonnes next year, up 25 percent from 2013. The company is also planning to increase the production capacity of its copper-based cable to 12,000 tonnes per month, up 60 percent from current levels.
With an operating margin of 9.8 percent - the highest among Indonesia's six publicly listed cable makers - analysts say PT Voksel is in a prime position to succeed. It supplies the majority of power cables to state utility PT Perusahaan Listrik Negara, making it one of the biggest cable makers in the country.
Madjid Abdillah, an equity analyst from state-owned rating agency PT Pefindo, said he expects Voksel and PT KMI Wire and Metal to be among perhaps six winners as the industry consolidates over the next few years.
"Their balance sheet, debt and liquidity are sound and the domestic demand is expected to grow around 20 percent annually so they should at least grow 15 percent a year," he said.
Among Indonesia's listed cable companies, KMI's operating margin trails only Voksel's, at 8.9 percent.
Other likely winners include PT Supreme Cable Manufacturing & Commerce, the nation's biggest cable maker by revenue, which has a strong foothold in the private sector.
"Efficiency is the key to survive, the demand will rise despite the (fact that) pricing is tight," said Nicodemus M. Trisnadi, finance director at Supreme Cable.
CLOSELY HELD
Indonesia's top five cable firms, including Voksel, recorded an annual average of 21 percent growth in earning before interest, taxes, depreciation and amortization (EBITDA) over the last five years, according to Thomson Reuters StarMine data, the highest among their Asia emerging market peers including China and India.
Shares in the five major cable firms have risen 23 percent on average so far in 2013 compared with a 3 percent fall for the main Jakarta Index.
But investors have limited opportunity to get into these stocks, which are dominated by insiders. Voksel's Gondokusumo said his company plans to increase market float and, hopefully, trading volume by splitting the stock later this year.
"The cable industry finally revived after the 1998 financial crisis, which had pushed some of the companies to the brink of bankruptcy," said Jemmy Paul, an equity fund manager at Jakarta-based PT Sucorinvest Asset Management.
"I think the valuation is still cheap now so there's still a lot room to grow. The problem is the shares ownership still spread among old investors and most of them think that the best strategy is to hold on to it because it's a value stock."
The Nursalim family, which owns many businesses from tires to property and retail, controls PT KMI Wire and Metal while Voksel is controlled by a Malaysian coal magnate Dato' Low Tuck Kwong who owns coal miner PT Bayan Resources.
"Our net margin is shrinking to 5 percent this year from 5.5 percent in 2012," said Asep Kusno, a director at KMI, which is planning to produce around 29,000 tonnes of cables in 2013, up 16 percent from last year.
KMI's production estimate represents around 4 percent of the total domestic output in 2013, which the Indonesian Cable Producers Association predicts will reach 550,000 tonnes, a 10 percent increase from 2012. (Additional Reporting by Andjarsari Paramaditha in JAKARTA and Khettiya Jittapong in BANGKOK; Editing by Jonathan Thatcher and Emily Kaiser)