|nrastructure have paved the way or the construct|on equ|pment demand to growphenomena||y. The lnd|an government has been |ncreas|ng the |nrastructure |nvest- ment target by 100% |n the |ast three |ve year p|ans. The current target o $1 tr||||on, |n the 2012-17 phase, w||| urther enhance the market or construct|on equ|pment an |ndustry wh|ch has w|t- nessedacons|stent doub|e-d|g|t growth over the past ewyears. Though the econom|c s|owdown had |ts moderate eects on the |ndus- try, |t rega|ned momentum |n 2010. The |nvestment spend on construct|on equ|pment was at around 3-3.5% dur- |ng the 10th F|ve Year p|an wh|ch rose to around 4-4.5% dur|ng the 11th |ve year p|an. As the government has now ocused eorts on esca|at|ng produc- t|v|ty and adherence to t|me||nes |n the |nrastructure pro|ects, |n the 12th p|an, the |nvestment spend on construct|on 70 The Masterbu||der - February 2013 www.masterbu||der.co.|n Cmo|lomyo o, Ooyo| 1|lm |mpuls t|o~ -mow|eogetooe| eseo|cm omo Comsu|l|mg !me ^sceml ot |mo|om Comsl|ucl|om |qu|p~eml |mousl|y n an emerg|ng economy such as ours, econom|c growth |s vast|y ldependent on |nvestments |n the countrys |nrastructure. ln the recent decades, lnd|a has w|tnessed mass|ve |nvestments |n the construct|on |ndus- try rom both pub||c and pr|vate enter- pr|ses. To ensure the GDP growth year ater year, the lnd|an government has enhanced the ocus on |nrastructure pro|ects, as ev|dent rom the 12th F|ve Year p|an. As a resu|t, mu|t|-b||||on do|- |ar |nvestments |n construct|ng roads, ports & power p|ants, and deve|op|ng 'SHBIR&AWE': !me C| |mousl|y mos o c||l|co| |o|e |m ~o-|mg |mo|o ome ot lme wo||o's lop t|ve ecomo~|es oy 2025 omo memce lme er|sl|mg ~o|-el p|oye|s move om erce||eml oppo|lum|ly lo me|p |eo||/e lme poleml|o| ot lm|s seclo| omo. |m oo|mg so. go|me| lme|| smo|e ot lme u3$ 12 -13 0||||om |evemue poleml|o|. equ|pment |s expected to r|se to around 5-5.5% wh|ch wou|d be spread over the next |ve years. Overa||, the |ndustry experts est|mate |t to grow by 15-16% CAGP|nthe next 5 years. Building up Momentum: Factors that drivethegrowth Though there are many actors wh|ch determ|ne the |ucrat|veness o an |n- dustry, there are two ma|n actors that make grow|ng construct|on equ|pment very ||ke|y. F|rst a sturdy growth |n the number o |arge construct|on pro|ects, w|th wh|ch, heavy construct|on mach|- nery |s w|thout an a|ternat|ve | compa- n|es want to bu||d beyond a certa|n s|ze. Be |t an |ndustr|a| structure, a power p|ant, dam, tunne|, ma|or br|dge or ex- pressway, ne|ther r|ses w|thout reap|ng the bene|ts o hety meta|||c arms. Es- pec|a||y |n the t|er l and t|er ll c|t|es, many new bu||d|ngs have reached a s|ze, wh|ch |s |mposs|b|e to bu||d w|thout the he|po proess|ona| equ|pment. The second actor |s t|me. The more the construct|on sector |s proess|ona- ||zed, the shorter the schedu|es become. Manua| |abor may st||| be cheaper, but |t w||| a|ways consume more t|me, wh|ch |s someth|ng that espec|a||y the b|g con- tractors are not w||||ng to compr|se on. Furthermore, there are some ma|or segments, wh|ch make spec|a| contr|- but|on to the overa|| growth o th|s |n- dustry. Earthmov|ng segment, |n par- t|cu|ar has been dr|v|ng the overa|| con- struct|on equ|pment |ndustry |n lnd|a, w|th strong demand emanat|ng rom government-backed |nrastructure pro- |ects. lndustry experts say that th|s seg- ment |s expected to reg|ster a remark- ab|e CAGP o approx|mate|y 21 percent dur|ng 2013 to 2017, as per the|r est|- mate orecast|ng a breakup o 70%de- mand|nconstruct|onand30%|nm|n|ng. ndian CE ndustry: Market Segmen- tation Accord|ng to the |ndustry sources, around 60,000 CE un|ts were so|d dur- |ng 2012 and the |gure |s expected to touch a mark o 100,000 by 2014. ln ||ne w|ththe pro|ected demand, the va|ue o |ndustry |s expected to grow to a mam- moth $6.5 b||||on dur|ng 2014 w|th earthmov|ng sector cont|nu|ng to make headway and expected to command a va|ue o $3.7 b||||on. The key equ|pment categor|es |n lnd|an CE lndustry may be ragmented as be|ow: Earthmoving and Road Construc- tion Equipment: Though both these segments const|tute the|r own |nd|v|d- ua| share to the CE |ndustry, there are a number o equ|pmentscommontoboth. The earthmov|ng segment |s the |argest |n lnd|an CE |ndustry and |nc|u- des equ|pment such as: Backhoe Loaders, Excavators, Loaders, Bu||- dozers, Sk|d-steer Loaders, Compac- t|on Equ|pments, v|bratory Po||ers, and Hau|ers. lt const|tutes a share o appro- x|mate|y 62% o the ent|re CE market. Poad construct|on equ|pments |n- c|ude B|tumen Sprayers, Aspha|t Drum M|x P|ants, Aspha|t Pavers, Poad Po||- ers, Wet M|x P|ants, etc. Th|s sector has started p|ck|ng up, as many construc- t|on compan|es who had run |nto ||qu|d- |ty cr|s|s are opt|ng or debt-restruc- tur|ng. Th|s segment accounts or near|y 9-10% o CE market current|y and |s expected to |ncrease |ts share urther. Concrete Equipment: Key equ|p- ments |n th|s segment |nc|ude Con- crete Breaker, Paver F|n|sher, Concrete Batch|ng P|ants, Concrete Pumps and Pap|d Trans|t M|xers. var|ous construc- 71 www.masterbu||der.co.|n The Masterbu||der - February 2013 t|on contractors |n t|er ll and lll c|t|es are |ook|ng or sma|| concrete equ|pment to ach|eve greater degree o mechan|- zat|on wh||e b|g |nrastructure pro|ects are g|v|ng r|se to demand or h|gher capac|ty concrete equ|pment. W|thpro- |ect t|me||nes gett|ng st|er, ready-m|x concrete (PMC) market |s expected to grow substant|a||y and the overa|| out- |ook or concrete equ|pment market |n lnd|a |s strong. A recent report by Know|edgeaber (research and consu|t|ng |rm), est|- mates concrete equ|pment market at $440 m||||on or year 2012 and pred|cts a growth rate o 18.0%or com|ngyears. lt a|so states that the concrete equ|p- ments account or near|y 9% o the tota| CE market current|y. Material handling equipment: Th|s |nc|udes Te|escop|c Hand|ers, Craw|er Cranes, Mob||e Cranes, Truck Cranes, Fork||t, P|ck & Carry cranes, S|ew Cranes, Tower Cranes and Conveyors. P|ck and Carry cranes const|tute the ma|or port|ono th|s market. Th|s sector |s expected to reg|ster a growth o 15-20 per cent |n the next ew years. The mater|a| hand||ng market |n lnd|a |s est|mated to be around 8-9 % o the tota| CE |ndustry. nvestor's Delight: Deeper engagement of global players Desp|te o the act that the lnd|an CE Industry OutIook The earthmov|ng sector const|tutes a share o approx|mate|y 62% o the $ 4.8 b||||on CE market M|n|ng sector has progressed at an amaz|ng pace |n the past decade: A L|ebherr P9400 M|n|ng Excavator |n act|on 72 The Masterbu||der - February 2013 www.masterbu||der.co.|n A|so, s|nce lnd|a stands among the top 10 markets or construct|on equ|p- ment and |s one o the key |nternat|ona| markets many |nternat|ona| ma|ors have amb|t|ous p|ans or lnd|a cons|der|ng that lnd|as per cap|ta number o ma- ch|nes |s very |ow at 13 mach|nes per m||||on compared to 396 |n Amer|ca and 96 |nCh|na. G|oba| p|ayers such as JCB rom Br|ta|n, H|tach|, Kobe|co and Komatsu rom Japan, vo|vo rom Sweden and Caterp|||ar and Terex rom the S en- tered the lnd|an market dur|ng the past two decades, some be|ng very recent entrants. Apart romthese g|ants, lnd|an CE |ndustry has attracted many other b|g |rms rom Ch|na, F|n|and, Ger- many, lta|y, SouthKorea, Spa|nand Tur- key to p|an assemb|y and manuactur- |ng ac|||t|es |n the country. S|mu|ta- neous|y, a number o domest|c compa- n|es are be|ng seen d|vers|y|ng the|r product porto||o through |nternat|ona| co||aborat|on and t|e-up arrangements. Many |nternat|ona| p|ayers have a|so appo|nted se|||ng agents or |mport|ng andse|||ngcomp|eteequ|pment |nlnd|a. Technologytrends: Still alongwaytogo The CE |ndustry |n lnd|a |s try|ng to br|ng |n |nternat|ona| |eve|s o techno|- ogy as demand and the sca|e o opera- t|on|ncreases. The |eve| o techno|ogy preva|ent |nternat|ona||y can be made ava||ab|e |n lnd|a through |o|nt ventures. However, not a|| equ|pments current|y be|ng man- uactured |n lnd|a are at par w|th the|r |nternat|ona| counterparts because the manuacturers do not ee| the need to br|ng |n |atest techno|ogy due to uncer- ta|n demand though the compan|es have the manuactur|ng ac|||t|es and des|gn capab|||t|es to manuacture the same |nlnd|a. Some o the other reasons or not manuactur|ngthe|atest equ|pment are: - The lnd|an market cannot absorb the cost o the |atest techno|ogy - l manuactured |n lnd|a or export markets, most o the components w||| have to be |mported - Equ|pment adher|ng to the |atest em|ss|on norms cannot be used s|nce the qua||ty o ue| requ|red or them|syet tobemadeava||ab|ehere. lt |s ant|c|pated that 2-3 years hen- ce, the need or more and more mech- an|zat|on and enhancement o sca|e may |ead to change |n the |eve| o tech- no|ogy |n use. These trends are now |ncreas|ng|y not|ceab|e |n Backhoe |oaders and Mater|a| hand||ng equ|p- ment manuactured. Another ma|or |ack|ng o the |ndus- try |s |ts poor ocus towards P&D. When benchmarked aga|nst g|oba| compa- n|es, the percentage o sa|es budgeted or P&D ranges rom a meager 0.5 to 3% |nlnd|a. market |s catered by about 200 domes- t|c manuacturers (sma||, med|um & |arge), lnd|a has on|y a ew, ma|n|y me- d|um and |arge compan|es |n the orga- n|zed sector who manuacture such soph|st|cated equ|pment. The techno|- ogy barr|ers are h|gh, espec|a||y w|th respect to some spec||c |e|ds ||ke m|n- |ng, tunne||ng, etc. andthereore the ro|e o se| manuactured equ|pments |s restr|cted to manuacture o compo- nents and some sub-assemb||es. But |n many other segments lnd|an |rms are strengthen|ng the|r ex|st|ng operat|ons or cater|ng to the grow|ng domest|c demand and are a|so p|ann|ng to ex- pand to tapoverseas markets. Mass|ve |nvestments |n lnrastructure are attract|ng g|oba| p|ayers |nto lnd|an market CE Industry OutIook Schwing Stetter (India) Pvt. Ltd A|though many o the manuactur- ers have estab||shed u||-|edged P&D un|ts to update the|r products / techno|- og|es, the |ndustry |n lnd|a st||| does not |nvest adequate|y |n P&D act|v|t|es compared to wor|d |eaders ||ke Cater- p|||ar or Komatsu, as the ex|st|ng mar- ket cannot absorb the deve|opment costs. However, we may w|tness more P&Dwork by wor|d ma|ors |n lnd|a, tak- |ng advantage o |ow P&D manpower costs. Construction Equipment Financing: Market has hugepotential Accord|ng to g|oba| research |rms, the growth momentum o the g|oba| CE |ndustry |s sh|t|ng to emerg|ng markets ||ke lnd|a and Ch|na rom matured mar- kets (NorthAmer|caandEurope), where |nance has become scarce and bus|- ness con|dence |s |ow due to s|ower growthand sovere|gndebt cr|s|s. Th|s has made a d|rect |mpact on the equ|pment |nance segment, wh|ch has rece|ved a b|g boost because o the r|s|ng popu|ar|ty o construct|on equ|pment. The current market s|ze o construct|on equ|pment |nanc|ng |n lnd|a |s est|mated to be around 30,000 Crore per annum wh|ch a|so |nc|udes many spec|a||st equ|pment wh|ch are |mported and get unded through d|- erent |nanc|a| |nstruments. CE be|ng a h|gh|y cap|ta|-|ntens|ve |ndustry, compan|es oten seek or equ|pment |nanc|ng opt|ons, wh|ch have |onger payback per|ods at man- ageab|e |nterest rates and wh|ch do not d|sturb the |nterna| rate-o-return (lPP) pro|ect|ons o the pro|ects. Stat|st|cs c|a|m that around 85% o the construc- t|on and m|n|ng equ|pments purchased are be|ng |nanced. Apart rom severa| compan|es, who are spec|a||zed |n |nanc|ng cap|ta| |n- tens|ve heavy |ndustry mach|nery, there are a|so |nstances o construct|on equ|p- ment manuacturers gett|ng |nto t|e- ups w|th |ead|ng |nance compan|es or ac|||tat|ng |nanc|ng opt|ons or the|r customers. Lead|ng banks & NBFCs, |nc|ud|ng many pub||c sector banks are a|so par- t|c|pat|ng |n th|s pro||e cons|der|ng that t|cket s|ze |n th|s bus|ness |s a|r|y h|gh. There |s a|so reported growth|nthe con- tract|ng and h|r|ng segment |n the sem| urban / rura| markets wh|ch bene|ts those |nance corporat|ons wh|ch are present |na|| these |ocat|ons. The equ|pment sector w||| cont|nue to see growth |n near uture, wh|ch w||| |n turn trans|ate |nto more und|ng opportun|t|es or the next decade. Some Targets Met, Missed: Unlocking theFuture Construct|on equ|pment market |n lnd|a |s expected to w|tness dynam|c growth |n the near uture ow|ng to gov- ernment |nvestments |n |nrastructure coup|edw|thgrow|ngrea| estatesector. But as |ong as |abor costs are com- parab|y |ow, at |east sma||er |rms w||| shy away rom the |nvestments that come w|th construct|on equ|pment and lnd|as h|gh|y ragmented bu||d|ng sector st||| hosts a s|gn||cant number o these. Compan|es thereore, needtoadapt on mu|t|p|e ronts. One o them |s co|- |aborat|on w|th supp||ers, another |s |mprov|ng the compet|t|veness. Th|s means - to create new products, wh|ch su|t the lnd|an customers demands, and to cont|nuous|y upgrade the sk|||s o the sa|es orce. A number o |nanc|ng so|ut|ons are ava||ab|e today |n both urban and rura| markets lncreas|ng opportun|t|es or exports |s another ma|or area that needs to be worked upon. Conservat|ve est|mates 74 The Masterbu||der - February 2013 www.masterbu||der.co.|n lndustry |s try|ng to br|ng |n |nternat|ona| |eve|s o techno|ogy CE Industry OutIook Apollo Infratech Pvt.Ltd suggest that as usua| growth w||| cre- ate a market o $8 b||||on by 2015. But a push by the |ndustry and government cou|d resu|t |n an add|t|ona| $4 b||||on opportun|ty equa||y sp||t between ex- ports and the prov|s|on|ng o lnd|a spe- c||c products. However, the |ncreas|ng compet|t|on ow|ng to g|oba| product |mports rom other countr|es such as Ch|na cou|d potent|a||y cha||enge |ndustry growth and thus needs to be addressed proact|ve|y. The lnd|an CE |ndustry needs to work towards enhanc|ng the qua||ty, de||very and pr|ce o ater sa|es-ser- v|ces, address|ng key gaps |n |nanc- |ng to cata|yze |atent demand - part|cu- |ar|y |n rura| areas and sma|| towns, |||) lnst|tut|ng po||cy measures that strengthen the |ndustry capab|||t|es. Key po||cy measures |nc|ude pro- v|d|ng tax bene|ts to p|ayers to encourage |nvestments |n research and deve|opment, estab||sh|ng an |ndustry ocused P&Dcenter, |ncen- t|v|z|ng exports by exempt|ng them rom exc|se and |oca| |ev|es, and conta|n|ng |mports o used equ|p- ment as |s done |n other emerg|ng market econom|es. |v) Deve|op a comprehens|ve roadmap or the |ntroduct|on o saety and em|ss|onnorms. The |ndustry and the government need to work |n co||aborat|on to create an enab||ng env|ronment that resu|ts |n the des|red regu|atory changes and export the Made |n lnd|a brand to |nternat|ona| shores. lt w||| not be a|r to compare the |ndustrys growth pace |n lnd|a w|th that o Ch|na as the enab||ng actors vast|y d|er. lnd|a w||| cont|nue to grow at |ts pace and |n |ts own way as dec|s|on- mak|ng |s decentra||zed and s|ow un- ||ke |n Ch|na where |t |s centra||y con- tro||ed and qu|ck. The CE |ndustry has a cr|t|ca| ro|e |n mak|ng lnd|a one o the wor|ds top |ve econom|es by 2025 and hence the ex|st|ng market p|ayers have an exce|- |ent opportun|ty to he|p rea||ze the potent|a| o th|s sector and, |n do|ng so, garner the|r share o the S$ 12 -13 B||- ||onrevenue potent|a|. expand|ng dea|er and channe| network coverage to address buyer ragmenta- t|on and qua||ty and proact|ve|y streng- then|ng supp||er capac|t|es and capa- b|||t|es. Apart rom the contr|but|on and eorts to be made by the market p|ay- ers, thelnd|anGovt. needs toact qu|ck|y onthe o||ow|ng |norder to ensure a sus- ta|nab|e growtho the |ndustry |) lncreas|ng the ava||ab|||ty o tra|ned manpower because at the current pace the |ndustry |s ||ke|y to ace a shorta|| o 0.3 m||||on tra|ned opera- tors by 2015. ||) Pemov|ng tax anoma||es to encour- age exports and |ower tax burdens that |mpede demand. 76 The Masterbu||der - February 2013 www.masterbu||der.co.|n Spec|a| ocus needs to be |a|d on deve|opment o and export o Made |n lnd|a brand to |nternat|ona| shores A number o |nanc|ng so|ut|ons are ava||ab|e today |n both urban and rura| markets CE Industry OutIook