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CE Industry OutIook

te|ecommun|cat|on sector & urban


|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

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