An earthmoving opportunity

DARE.CO.IN

opportunity/infra

An earthmoving opportunity The construction equipment rental business is at a nascent stage and is a mere 2% of the total equipment market. However, this is projected to grow to 25% by 2010, thanks to the rising demand for machinery from the infrastructure sector /Vimarsh Bajpai

I

nfrastructure is the backbone of any economy and India is no exception. The country’s construction, housing and real estate sector has been growing at 10% in the last five years, employing more than 30 million people. The sector, which covers rural and urban infrastructure, roads, airports, sea-ports and commercial and residential establishments, has got a major impetus in the last five years, thanks to a host of government projects, such as Bharat Nirman, Pradhan Mantri Grameen Sadak Yojana and airport modernization.

The Eleventh Five Year Plan (200712) envisages the total investment in the infrastructure sector to touch 9% of GDP towards the end of the Plan period, from 5% of GDP in 2006-07, according to the Economic Survey 2007-08. Based on this projection, the Survey adds, the investment in physical infrastructure alone from 2007-2012 is estimated to be $500 billion. Massive construc-

DARE/quick points

DARE/machinery demand ($ billion)

• Investments worth $500 billion to flow in infrastructure between 2007-12 • Construction equipment industry to grow fivefold from $2.3 billion to $12-13 billion by 2015 • Construction equipment rental business is a mere 2% of the total equipment market at present; projected to touch 25% by 2010 • Global demand for construction machinery to jump 6% per year to $130 billion in 2011 • Major players in rental business: Quippo and Sanghvi Movers, both entrepreneurial ventures tion projects would translate into multiple downstream opportunities for several other sectors, such as cement, steel and construction equipment.

200 177 150

131 97.7

100

71.4

57.2 47.7

50

31.7 17.2

0

2001

2006 Global

2011

2016

Asia-pacific

SOURCE: Freedonia Group

The Rental Business Large construction projects require deployment of heavy equipment such as cranes, bulldozers, loaders and dumpers. Purchasing such equipment only adds to the costs of construction companies, who are already battling soaring commodity prices, particu-

DARE/construction equipment product range Earthmoving Equipment Backhoe Loaders Excavaters Loaders Bulldozers Skid-steer Loaders Wheeled Loading Shovels Wheel Loaders Motor Graders Motor Scrappers Dump Trucks Wheel Dozers Draglines

Concrete Equipment Concrete Breaker Paver Finisher Concrete Batching Plants Concrete Pumps Concrete Mixers Hot Mix Plants Slew Cranes Tower Cranes Conveyors

56 APRIL 2008 SOURCE: India Brand Equity Foundation-KPMG

Material Handling Equipment Telescopic Handlers Crawler Cranes Mobile Cranes Truck Cranes Forklifts Pick & Carry Cranes

Material Preparation Crushing Plants Jaw Crushers Pavers Demolition Equipment

Road Construction Equipment Construction Equip Vibratory Rollers Boring Equipment

Construction Vehicles Dumpers Articulated Haulers

Tunnelling and Drilling Rotary / DTH Drilling Hammer Track Drill

DARE.CO.IN

opportunity/infra larly those of cement and steel. Many companies thus look around for such equipment on lease. This has helped in the growth of construction equipment banks, which provide machinery on rent and make it easier for developers to contain project costs.

Two companies dominate India’s equipment rental business—Quippo, promoted by SREI, an infrastructure finance company, and Saghvi Movers. However, there are several smaller players in the unorganized sector. The launch of Quippo, the country’s largest infrastructure equipment bank, in 2002, coincided with the start of the Tenth Five Year Plan period. The company made the most of the big opportunities in renting equipment not only with the construction sector but also with power, mining, ports, telecom and oil and gas. Besides, Quippo also provides value-added services such as trained manpower and maintenance facilities.

Sanghvi Movers is another major player in the business with special focus on cranes. Operating with a fleet of 300 medium to large cranes, the company boasts of an impressive lineup of clients such as Suzlon, Reliance, Enercon, BHEL and L&T.

DARE/major manufacturers (global)* Company

Country

Caterpillar

US

Komatsu

Japan

Volvo

Sweden

Hitachi

Japan

Liebherr Intl

Switzerland

Deere

US

Terex

US

* in 2006 SOURCE: Freedonia Group

‘ECE Vision 2015: Scaling new heights in the Indian Earth Moving and Construction Equipment Industry’, a study conducted by McKinsey for CII and the Indian Earthmoving, Construction Industry Association (IECIAL).

Construction equipment rental is one of the emerging growth areas of the Indian construction equipment industry, besides exports, and refurbishing of used equipment and services.

“The services segment in the construc-

DARE/major manufacturers (India) Bharat Earth Movers L&T Case L&T Komatsu Ingersoll-Rand India Tractors India

The Market

Telco Construction Equipment

The earthmoving and construction equipment industry has the potential to grow five-fold from its current size of $2.3 billion to approximately $12-13 billion by 2015, growing at 24% compound annual growth rate, according to

JCB Godrej & Boyce Mfg Escorts Construction Equipment Action Construction Equipment

tion equipment business is still nascent and presents good opportunities for growth,” says a study carried out by the India Brand Equity Foundation (IBEF) and KPMG. Currently, equipment rentals contribute just about 2% of the market. This is expected to grow to about 25% by 2010, the study says. In the US, the rental market is 65% of the total construction equipment market.

Globally, the demand for construction machinery will jump 6% per year to $130 billion in 2011, says a new study from The Freedonia Group, the US-based industrial market research firm. In 2006, the demand stood at $97.7 billion. The study says that China, India, Mexico and Russia will register some of the largest sales increases, with China alone accounting for 31% of all additional construction machinery demand through 2011.

The demand will be fuelled by healthy economic growth, ongoing industrialization efforts, rising population and higher standards of living in a developing world leading to increase in spending on construction.

While India and China are on an upswing, the US, however, could see a slump in its construction equipment rental business. This is because of the fears of recession looming large over the world’s largest economy and the ongoing trouble in its housing market.

Less construction of houses translates into lesser demand for cranes and dumper trucks among other earthDAR E moving machinery.

APRIL 2008

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