CONSTRUCTION EQUIPMENT - India Brand Equity Foundation

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CONSTRUCTION EQUIPMENT

November 2010

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Advantage India

Market overview

Investments

Policy and regulatory framework

Opportunities

Industry associations

CONSTRUCTION EQUIPMENT November 2010

Contents

Advantage India

Advantage

India

High growth in

the construction

equipment sectorCatalyst for

large-scale

employment

opportunities

The Indian construction sector

is considered to be the

country’s second-largest

economic segment after

agriculture, employing around

32 million people.

Raw material

available in

abundance

Substantial

projects in the

pipeline

Between April 2010 and March 2013, 23 infrastructure projects entailing a cumulative

investment of more than US$ 770 million are scheduled to be commissioned.

Expansion

expected in the

sector driven by

GoI initiatives

The GoI’s focus on

infrastructure development has

significantly boosted the

construction equipment

industry and its construction

expenditure is expected to be

nearly US$ 253.9 billion (INR

12,189 billion) between 2008–

09 and 2012–13.

Strong

government

focus on

infrastructure

development

The Union Budget 2010–11 has

allocated US$ 36.16 billion to

the infrastructure sector,

reflecting the Government of

India (GoI)’s strong focus on

the development of

infrastructure facilities.

Sources: Union Budget 2010-11; IAS, 19 November 2010, Centre for Monitoring Indian Economy; ―Performance of Select Industries,‖ Department of

Industrial Policy & Promotion website, http://dipp.gov.in/industry/content_industries/index.htm, accessed 25 January 2010; ―Project search,‖ PPP

India database: Department of Economic Affairs website, www.pppindiadatabase.com, accessed 13 November 2010.

ADVANTAGE INDIA

Construction Equipment November 2010

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Sales of construction equipment industry is expected to grow at 22.2 per cent in 2010–11.

• Raw material such as cement, steel

and iron are available in

abundance.

• India is the second-largest

producer of cement (2009–2010),

the fifth-largest producer of steel

(2009–2010) and the largest

producer of direct reduced iron

(2009–2010) in the world.

http://dipp.gov.in/industry/content_industries/index.htm

http://www.pppindiadatabase.com/

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Advantage India

Market overview

Investments


Opportunities


Contents


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Market overview … (1/3)

• The construction equipment market can be classified into four segments ― earth-moving equipment, concrete equipment , road-building equipment and material-handling equipment and cranes.

• Until the1960s, the domestic requirement of mining and construction equipment was met primarily through imports.

• The large-scale domestic production of construction equipment began only in1964 with the establishment of Bharat Earthmovers Ltd (BEML), a public sector unit of the Ministry of Defence, in Kolar, South India. Sources: ―Report on Indian mining and construction equipment

industry,‖ Ministry of Heavy Industries and Public Enterprises

website, http://dhi.nic.in/, accessed 18 November 2010.

MARKET OVERVIEW

Demand generator (percentage)

68%

13%

10%

7%

2%

Earth-moving equipmentMaterial-handling and cranesConcrete equipment

Road-building equipmentOthers


http://dhi.nic.in/

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• Close to 200 manufacturers cater to the Indian construction equipment market .

• Most Indian manufacturing companies are involved in a range of activities, including design and engineering, manufacturing, erection, servicing and commissioning.

• Companies also serve as selling agents for international players. Alternatively, they manufacture and import either complete equipment or equipment in semi-knocked down (SKD) condition from their principals abroad and market them.

• Public limited companies, including public sector units (PSUs), constitute 71 per cent of the sector, while private limited companies or joint ventures (JVs), including closely held private limited companies, constitute 29 per cent.

• A handful of large players such as BEML and JCB India Ltd, etc. dominate the market, accounting for more than 90 per cent of the industry’s revenues.

• The unorganised sector contributes around 10 per cent in value terms and most players belong to this segment.

Construction equipment*

Backhoe loaders

Crawler dozers (up to 320 HP*)

Crawler excavators above 3.5 cubic

metres

Loaders

Motor graders

Skid steer loaders

Wheel loaders below 3 cubic metres

Vibratory compactors

Dump trucks (below 35 tonnes)

Tippers

Breakers

All-terrain cranes

Asphalt pavers

Asphalt drums/wet mix plants

Fork lifts

HP*- Horsepower

MARKET OVERVIEW

*This is an indicative list.


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• Sales of material-handling equipment are expected to continue rising at a healthy pace in future to reach US$ 943.95 million (INR 45.31 billion) in 2010–11.

• In 2010–11, the production of cranes as well as lifts and escalators is expected to increase by 20.4 per cent and 21.7 per cent, respectively.

• Currently , the material-handling equipment market is largely import-driven, with India importing construction machinery worth US$ 362.39 million in 2009–2010, up by 11.4 per cent over 2008–09.

Trade in material-handling equipment

(US$ million)

2005–06 2006–07 2007–08 2008–092009–

2010

Imports 91.98 198.3 215.9 325.18 362.39

Exports 16.38 22.46 29.52 33.51 31.48

MARKET OVERVIEW


Source: IAS, 19 November 2010, Centre for Monitoring Indian Economy.


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Company

Revenue

(2009–2010)

(in US$

million)

Focus industry segments Products

BEML 741.1Mining, construction, defence,

rail and metro

Crawler dozers, wheel dozers, excavators, dump

trucks, loaders, backhoe loaders, pipe layers, walking

draglines, rope shovels and sprinklers

JCB India Ltd

*(as on 31 December 2010)428.1

Construction, housing,

quarrying and agriculture

Excavators, compactors and tele-handling equipment,

skid steers, wheeled and backhoe loaders, telescopic

handlers, engines and vibratory single-drum

compactors

Mcnally Bharat

Engineering Co Ltd309.8

Power, steel, aluminium,

material-handling, coal

washing, port cranes, civic,

industrial water supply

Crushing, screening and milling equipment, pressure

vessels, material-handling equipment, steel plant

equipment, process equipment such as flotation cell

and thickeners

Key players* … (1/3)

MARKET OVERVIEW

Sources: BEML Limited 2009 –10 annual report; Mcnally Bharat Engineering Co Ltd 2009 –10 annual report; Prowess, 2 December 2010, Centre

for Monitoring Indian Economy.

* This is an indicative list.


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Company

Revenue

(2009–2010)

(in US$ million)


Elecon Engineering

Co Ltd202.5

Power transmission and material-

handling equipment

Elevators, conveyors and moving machines, gears

and crushers

TRF Ltd 136.2Power and steel plants, ports,

fertilisers and mining

Stacker reclaimers, level luffing cranes, wagon

tripplers with side arm charger, rotary breakers

and ring granulators

Action Construction

Equipment Ltd91.8

Infrastructure construction, heavy

engineering, industrial projects,

power projects, ports and

shipyards, dams, roads, coal mines

and steel

Hydraulic mobile cranes, mobile tower cranes,

fixed tower cranes, back hoe and wheeled loaders,

lorry loaders, forklift trucks, crawler cranes, piling

rigs, vibratory rollers and tractors


MARKET OVERVIEW

Sources: Elecon Engineering Co Ltd 2009 –10 annual report; TRF Ltd 2009 –10 annual report; Prowess, 2 December 2010, Centre for Monitoring

Indian Economy.



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Company

Revenue

(2009–2010)

(in US$ million)


Gujarat Apollo

Industries Ltd42.7 Road construction and maintenance

Asphalt plants, paver finishers, wet mix plants,

bitument sprayers, kerb pavers, compaction

equipment, crushing and screening machines, road-

marking machines and allied equipment

Eimco Elecon (India)

Ltd34.2 Mining

Side dump loaders, load haul dumpers, and blast

hole and water well drilling rigs

L&T Komatsu Ltd25 Construction

Hydraulic excavators, components and hydraulic

systems


Sources: Gujarat Apollo Industries Ltd 2009 –10 annual report; Eimco Elecon (India) Ltd 2009 –10 annual report; Prowess, 2 December 2010,

Centre for Monitoring Indian Economy.


MARKET OVERVIEW


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Key trends

Rising competition

from low-cost

countries

New players setting

up infrastructure

bases in India

• Imports into India from other countries are on rise due to the non-availability of products (high tonnage cranes and mining equipment) in the country or the cost advantage (on used equipment).

• Additionally, competition is likely to intensify as many international players are setting up better distribution and after-sales network in India.

• Although the size of the Indian construction equipment industry (US$ 2.6 billion to US$ 3.1 billion) is relatively small in comparison with the global market, international original equipment manufacturers (OEMs) have announced their plans to set up manufacturing facilities in the country.

• Since 2005 the industry has witnessed various global tie-ups, including Kobelco’s JV with Komatsu and John Deere’s (USA) JV with Ashok Leyland Limited, to strengthen their presence in India.

The growth of India’s construction equipment industry is directly linked to the growth of the country’s economy, since it is driven by increased investments in the infrastructure and related sectors. The industry is amid an intermediate growth phase in the country and has been evolving over the years, characterisedwith the entry of major global players.

Increased focus on

research and

development

• With the growing presence of international companies/products in India, the country’s construction equipment players have made significant investments in R&D to match international quality standards.

• The industry has been witnessing continuous modernisation and the adoption of new technologies.


MARKET OVERVIEW

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Advantage India

Market overview

Investments


Opportunities


Contents


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Investments• The GoI’s thrust on infrastructure development has significantly enhanced the construction equipment

industry.

• The industry has witnessed a steady flow of investments since the September 2006 quarter. Outstanding investments at the end of September 2010 stood at US$ 880 million (INR 42.55 billion), spread across 24 projects. Some of the projects to be commissioned by March 2013 include :

• Ashok Leyland John Deere’s backhoe loaders, front loaders and four wheel — December 2010

• Electromech Material Handling System’s US$ 2.08-million (INR 100 million) initial cranes and

jacks — December 2010

• Wirtgen India's US$ 6.25 million (INR 300 million) building-equipment project in Pune —

December 2010

• Kobelco Construction Equipment India’s US$ 10.4-million (INR 500-million) earth-moving

equipment-manufacturing project (phase I) in Andhra Pradesh — January 2011

• Telco Construction Equipment’s earth-moving machinery project (Phase II) — March 2011

• Caterpillar India’s US$ 264.16-million (INR 12.68 billion) heavy engineering equipment —

December 2012.

Source: IAS, 19 November 2010, Centre for Monitoring Indian Economy.

INVESTMENTS


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Advantage India

Market overview

Investments


Opportunities


Contents


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• The GoI has permitted 100 per cent FDI in construction and development projects to attract more investment. Some of the key specifications are:

• Under the automatic route, a US$ 2-million limit on lump sum payments is permitted.

• Royalty is to be levied as 5 per cent on domestic sales and 8 per cent on exports, net of taxes.

• The depreciation on general plant and machinery is proposed at around 15 per cent.

• Following are the specific GoI initiatives that positively impact the engineering sector:

• Tariff protection on capital goods has been removed.

• Various initiatives focused on infrastructure development and construction have been introduced.

• The GoI has also introduced initiatives to increase power generation and improve the quality of power supply.

• Custom duties on various equipments have been reduced.

Sources: ―Economic Survey 2009–2010,‖ Union Budget & Economic Survey website, http://indiabudget.nic.in, accessed 10 November 2010;

―Indian mining and construction equipment industry: strong growth prospects despite competitive pressures,‖ ICRA rating feature, accessed 19

November 2010

POLICY & REGULATORY FRAMEWORK


http://indiabudget.nic.in/

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Advantage India

Market overview

Investments


Opportunities


Contents


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Opportunities … (1/2)

Increasing demand

for construction

equipments from

infrastructure

projects

Sources: ―Press release‖, Department of Industrial Policy & Promotion website, www.dipp.nic.in, accessed 10 November 2010; Ministry of Heavy

Industries and Public Enterprises 2009-10 annual report. Indian Earthmoving & Construction Industry Association Ltd website, www.iecial.com,

accessed 19 November 2010; Sector focus: Construction, Indian Infrastructure, January 2010; Union Budget 2010-11; Business Standard, April 9,

2010; CRISIL Research; IAS, accessed 19 November 2010, Centre for Monitoring Indian Economy; ―Infrastructure,‖ Planning Commission website,

http://planningcommission.gov.in/sectors/index.php?sectors=infra, accessed 19 November 2010.

OPPORTUNITIES


• The GoI’s focus on infrastructure development has significantly boosted the construction equipment industry.

• The GoI plans to step up its infrastructure expenditure as a percentage of the national GDP from 6.5 per cent in 2008–09 to around 9 per cent by 2014. The GoI has announced that investment in the infrastructure sector is expected to total US$1 trillion in the Twelfth Five Year Plan (2012–17), compared with US$ 514.04 billion in the Eleventh Five Year Plan (2007–2012).

• Significant government investments in infrastructure, particularly in roads and highways, have created avenues of growth for construction equipment and engineering procurement construction (EPC) players.

• For instance, the National Highway Authority of India (NHAI) plans to award 18 projects worth US$ 2.89 billion (INR 138.86 billion) across Madhya Pradesh, Maharashtra, Jammu & Kashmir, West Bengal, Bihar, Karnataka, Tamil Nadu, Kerala, Uttar Pradesh, Andhra Pradesh, Gujarat and Haryana in the near future.

• Capacity expansion in the steel, cement, oil refining and power sectors to meet growing infrastructure investments in India is expected to generate demand for construction equipment.

http://www.dipp.nic.in/

http://www.iecial.com/

http://planningcommission.gov.in/sectors/index.php?sectors=infra

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Opportunities … (2/2)

Sources: ―Press release‖, Department of Industrial Policy & Promotion website, www.dipp.nic.in, accessed 10 November 2010; Ministry of Heavy

Industries and Public Enterprises 2009-10 annual report. Indian Earthmoving & Construction Industry Association Ltd website, www.iecial.com,

accessed 19 November 2010; Sector focus: Construction, Indian Infrastructure, January 2010; Union Budget 2010-11; Business Standard, April 9,

2010; CRISIL Research; IAS, accessed 19 November 2010, Centre for Monitoring Indian Economy; ―Infrastructure,‖ Planning Commission website,

http://planningcommission.gov.in/sectors/index.php?sectors=infra, accessed 19 November 2010.

OPPORTUNITIES

Rising export

opportunities

Growth in

construction

equipment-rental

business


• The export opportunity is expected to grow as a result of rising cost pressures on developed countries and due to the emergence of low-cost competitive suppliers and OEMs in India.

• The construction equipment-rental business in India, which currently accounts for only around 7 to 8 per cent of the size of the global industry, is another growth driver. The segment’s contribution to the industry is likely to double to 16 per cent by 2015.

http://www.dipp.nic.in/


http://planningcommission.gov.in/sectors/index.php?sectors=infra

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Advantage India

Market overview

Investments


Opportunities


Contents


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Indian Earthmoving & Construction Industry Association Ltd

23, 26 Institutional Area, Lodhi Road,

New Delhi –110003

INDIA

Phone: 91 11 24682225

Fax: 91 11 24682226

Website: www.iecial.com

INDUSTRY ASSOCIATIONS



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Note

Wherever applicable, numbers in the report have been rounded off to the nearest whole number.

Conversion rate used: US$ 1= INR 48

NOTE


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