CONSTRUCTION EQUIPMENT. November 2010

Transcription

1 CONSTRUCTION EQUIPMENT November

2 CONSTRUCTION EQUIPMENT November 2010 Contents Advantage India Market overview Investments Policy and regulatory framework Opportunities Industry associations 2

3 ADVANTAGE INDIA Advantage India Sales of construction equipment industry is expected to grow at 22.2 per cent in The Union Budget has allocated US$ billion to the infrastructure sector, reflecting the Government of India (GoI) s strong focus on the development of infrastructure facilities. The GoI s focus on infrastructure development has significantly boosted the construction equipment industry and its construction expenditure is expected to be nearly US$ billion (INR 12,189 billion) between and Strong government focus on infrastructure development Expansion expected in the sector driven by GoI initiatives High growth in the construction equipment sector Advantage India Substantial projects in the pipeline Catalyst for large-scale employment opportunities Raw material available in abundance Between April 2010 and March 2013, 23 infrastructure projects entailing a cumulative investment of more than US$ 770 million are scheduled to be commissioned. The Indian construction sector is considered to be the country s second-largest economic segment after agriculture, employing around 32 million people. Sources: Union Budget ; IAS, 19 November 2010, Centre for Monitoring Indian Economy; Performance of Select Industries, Department of Industrial Policy & Promotion website, accessed 25 January 2010; Project search, PPP India database: Department of Economic Affairs website, accessed 13 November Raw material such as cement, steel and iron are available in abundance. India is the second-largest producer of cement ( ), the fifth-largest producer of steel ( ) and the largest producer of direct reduced iron ( ) in the world.

4 CONSTRUCTION EQUIPMENT November 2010 Contents Advantage India Market overview Investments Policy and regulatory framework Opportunities Industry associations 4

5 MARKET OVERVIEW 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. 13% 10% 7% Demand generator (percentage) 2% 68% Earth-moving equipment Material-handling and cranes Concrete equipment Road-building equipment Others Sources: Report on Indian mining and construction equipment industry, Ministry of Heavy Industries and Public Enterprises website, accessed 18 November

6 MARKET OVERVIEW Market overview (2/3) 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. Backhoe loaders Construction equipment* 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 *This is an indicative list. 6

7 MARKET OVERVIEW Market overview (3/3) Sales of material-handling equipment are expected to continue rising at a healthy pace in future to reach US$ million (INR billion) in In , 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. Trade in material-handling equipment (US$ million) Imports Exports Currently, the material-handling equipment market is largely import-driven, with India importing construction machinery worth US$ million in , up by 11.4 per cent over Source: IAS, 19 November 2010, Centre for Monitoring Indian Economy. 7

8 MARKET OVERVIEW Key players* (1/3) Revenue ( ) Company (in US$ million) BEML JCB India Ltd *(as on 31 December 2010) Mcnally Bharat Engineering Co Ltd Focus industry segments Mining, construction, defence, rail and metro Construction, housing, quarrying and agriculture Power, steel, aluminium, material-handling, coal washing, port cranes, civic, industrial water supply Products Crawler dozers, wheel dozers, excavators, dump trucks, loaders, backhoe loaders, pipe layers, walking draglines, rope shovels and sprinklers Excavators, compactors and tele-handling equipment, skid steers, wheeled and backhoe loaders, telescopic handlers, engines and vibratory single-drum compactors Crushing, screening and milling equipment, pressure vessels, material-handling equipment, steel plant equipment, process equipment such as flotation cell and thickeners Sources: BEML Limited annual report; Mcnally Bharat Engineering Co Ltd annual report; Prowess, 2 December 2010, Centre for Monitoring Indian Economy. * This is an indicative list. 8

9 MARKET OVERVIEW Key players* (2/3) Revenue Company ( ) (in US$ million) Elecon Engineering Co Ltd TRF Ltd Action Construction Equipment Ltd 91.8 Focus industry segments Power transmission and materialhandling equipment Power and steel plants, ports, fertilisers and mining Infrastructure construction, heavy engineering, industrial projects, power projects, ports and shipyards, dams, roads, coal mines and steel Products Elevators, conveyors and moving machines, gears and crushers Stacker reclaimers, level luffing cranes, wagon tripplers with side arm charger, rotary breakers and ring granulators 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 Sources: Elecon Engineering Co Ltd annual report; TRF Ltd annual report; Prowess, 2 December 2010, Centre for Monitoring Indian Economy. * This is an indicative list. 9

10 MARKET OVERVIEW Key players* (3/3) Company Gujarat Apollo Industries Ltd Eimco Elecon (India) Ltd L&T Komatsu Ltd Revenue ( ) Focus industry segments (in US$ million) 42.7 Road construction and maintenance 34.2 Mining 25 Construction Products Asphalt plants, paver finishers, wet mix plants, bitument sprayers, kerb pavers, compaction equipment, crushing and screening machines, roadmarking machines and allied equipment Side dump loaders, load haul dumpers, and blast hole and water well drilling rigs Hydraulic excavators, components and hydraulic systems Sources: Gujarat Apollo Industries Ltd annual report; Eimco Elecon (India) Ltd annual report; Prowess, 2 December 2010, Centre for Monitoring Indian Economy. * This is an indicative list. 10

11 MARKET OVERVIEW Key trends 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, characterised with the entry of major global players. New players setting up infrastructure bases 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. Rising competition from low-cost countries Increased focus on research and development 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. 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. 11

12 CONSTRUCTION EQUIPMENT November 2010 Contents Advantage India Market overview Investments Policy and regulatory framework Opportunities Industry associations 12

13 INVESTMENTS 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 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$ million (INR billion) heavy engineering equipment December Source: IAS, 19 November 2010, Centre for Monitoring Indian Economy. 13

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15 POLICY & REGULATORY FRAMEWORK Policy and regulatory framework 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 , Union Budget & Economic Survey website, accessed 10 November 2010; Indian mining and construction equipment industry: strong growth prospects despite competitive pressures, ICRA rating feature, accessed 19 November

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17 OPPORTUNITIES Opportunities (1/2) The GoI s focus on infrastructure development has significantly boosted the construction equipment industry. Increasing demand for construction equipments from infrastructure projects The GoI plans to step up its infrastructure expenditure as a percentage of the national GDP from 6.5 per cent in to around 9 per cent by The GoI has announced that investment in the infrastructure sector is expected to total US$1 trillion in the Twelfth Five Year Plan ( ), compared with US$ billion in the Eleventh Five Year Plan ( ). 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 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. Sources: Press release, Department of Industrial Policy & Promotion website, accessed 10 November 2010; Ministry of Heavy Industries and Public Enterprises annual report. Indian Earthmoving & Construction Industry Association Ltd website, accessed 19 November 2010; Sector focus: Construction, Indian Infrastructure, January 2010; Union Budget ; Business Standard, April 9, 2010; CRISIL Research; IAS, accessed 19 November 2010, Centre for Monitoring Indian Economy; Infrastructure, Planning Commission website, accessed 19 November

18 OPPORTUNITIES Opportunities (2/2) Rising export opportunities 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. Growth in construction equipment-rental business 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 Sources: Press release, Department of Industrial Policy & Promotion website, accessed 10 November 2010; Ministry of Heavy Industries and Public Enterprises annual report. Indian Earthmoving & Construction Industry Association Ltd website, accessed 19 November 2010; Sector focus: Construction, Indian Infrastructure, January 2010; Union Budget ; Business Standard, April 9, 2010; CRISIL Research; IAS, accessed 19 November 2010, Centre for Monitoring Indian Economy; Infrastructure, Planning Commission website, accessed 19 November

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20 INDUSTRY ASSOCIATIONS Industry associations Indian Earthmoving & Construction Industry Association Ltd 23, 26 Institutional Area, Lodhi Road, New Delhi INDIA Phone: Fax: Website: 20

21 NOTE Note Wherever applicable, numbers in the report have been rounded off to the nearest whole number. Conversion rate used: US$ 1= INR 48 21

22 CONSTRUCTION EQUIPMENT November 2010 DISCLAIMER India Brand Equity Foundation (IBEF) engaged Ernst & Young Pvt Ltd to prepare this presentation and the same has been prepared by Ernst & Young in consultation with IBEF. All rights reserved. All copyright in this presentation and related works is solely and exclusively owned by IBEF. The same may not be reproduced, wholly or in part in any material form (including photocopying or storing it in any medium by electronic means and whether or not transiently or incidentally to some other use of this presentation), modified or in any manner communicated to any third party except with the written approval of IBEF. This presentation is for information purposes only. While due care has been taken during the compilation of this presentation to ensure that the information is accurate to the best of Ernst & Young and IBEF s knowledge and belief, the content is not to be construed in any manner whatsoever as a substitute for professional advice. Ernst & Young and IBEF neither recommend nor endorse any specific products or services that may have been mentioned in this presentation and nor do they assume any liability or responsibility for the outcome of decisions taken as a result of any reliance placed on this presentation. Neither Ernst & Young nor IBEF shall be liable for any direct or indirect damages that may arise due to any act or omission on the part of the user due to any reliance placed or guidance taken from any portion of this presentation. 22