CONSTRUCTION EQUIPMENT

November 2010

CONSTRUCTION EQUIPMENT

November 2010

Contents
Advantage India Market overview Investments Policy and regulatory framework Opportunities Industry associations

ADVANTAGE INDIA Construction Equipment

November 2010

Advantage India
Sales of construction equipment industry is expected to grow at 22.2 per cent in 201011. The Union Budget 201011 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.

Strong government focus on infrastructure development

High growth in the construction equipment sector

Catalyst for large-scale employment opportunities

The Indian construction sector is considered to be the countrys second-largest economic segment after agriculture, employing around 32 million people.

The GoIs 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 201213.

Expansion expected in the sector driven by GoI initiatives

Advantage India
Raw material available in abundance Substantial projects in the pipeline
Raw material such as cement, steel and iron are available in abundance. India is the second-largest producer of cement (20092010), the fifth-largest producer of steel (20092010) and the largest producer of direct reduced iron (20092010) in the world.

Between April 2010 and March 2013, 23 infrastructure projects entailing a cumulative investment of more than US$ 770 million are scheduled to be commissioned.
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.

CONSTRUCTION EQUIPMENT

November 2010

Contents
Advantage India Market overview Investments Policy and regulatory framework Opportunities Industry associations

MARKET OVERVIEW Construction Equipment

November 2010

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.

Demand generator (percentage)

2% 7% 10% Earth-moving equipment Material-handling and cranes Concrete equipment Road-building equipment Others

13%

68%

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 Construction Equipment

November 2010

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 industrys 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 *This is an indicative list.

MARKET OVERVIEW Construction Equipment

November 2010

Market overview (3/3)

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 201011. In 201011, 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 20092010, up by 11.4 per cent over 200809.
Source: IAS, 19 November 2010, Centre for Monitoring Indian Economy.

Trade in material-handling equipment (US$ million) 200506 200607 200708 200809 Imports Exports 91.98 16.38 198.3 22.46 215.9 29.52 325.18 33.51 2009 2010 362.39 31.48

MARKET OVERVIEW Construction Equipment

November 2010

Key players* (1/3)

Revenue Company (20092010) (in US$ million) BEML 741.1 Mining, construction, defence, rail and metro Crawler dozers, wheel dozers, excavators, dump trucks, loaders, backhoe loaders, pipe layers, walking draglines, rope shovels and sprinklers Excavators, compactors and tele-handling equipment, JCB India Ltd
*(as on 31 December 2010)

Focus industry segments

Products

428.1

Construction, housing, quarrying and agriculture Power, steel, aluminium,

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

Mcnally Bharat Engineering Co Ltd

309.8

material-handling, coal washing, port cranes, civic, industrial water supply

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.

MARKET OVERVIEW Construction Equipment

November 2010

Key players* (2/3)

Revenue Company Elecon Engineering Co Ltd TRF Ltd (20092010) (in US$ million) 202.5 Power transmission and materialhandling equipment 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 Focus industry segments Products

136.2

Power and steel plants, ports,

fertilisers and mining Infrastructure construction, heavy

Action Construction Equipment Ltd

engineering, industrial projects, 91.8 power projects, ports and shipyards, dams, roads, coal mines and steel

Sources: Elecon Engineering Co Ltd 2009 10 annual report; TRF Ltd 2009 10 annual report; Prowess, 2 December 2010, Centre for Monitoring Indian Economy. * This is an indicative list.

MARKET OVERVIEW Construction Equipment

November 2010

Key players* (3/3)

Revenue Company (20092010) (in US$ million) Focus industry segments Products

Asphalt plants, paver finishers, wet mix plants,

Gujarat Apollo Industries Ltd Eimco Elecon (India) Ltd 42.7 Road construction and maintenance bitument sprayers, kerb pavers, compaction equipment, crushing and screening machines, roadmarking machines and allied equipment 34.2 25 Mining Construction Side dump loaders, load haul dumpers, and blast hole and water well drilling rigs

L&T Komatsu Ltd

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. * This is an indicative list.

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MARKET OVERVIEW Construction Equipment

November 2010

Key trends
The growth of Indias construction equipment industry is directly linked to the growth of the countrys 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 Kobelcos JV with Komatsu and John Deeres (USA) JV with Ashok Leyland Limited, to strengthen their presence 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. With the growing presence of international companies/products in India, the countrys 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.

Rising competition from low-cost countries

Increased focus on research and development

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CONSTRUCTION EQUIPMENT

November 2010

Contents
Advantage India Market overview Investments Policy and regulatory framework Opportunities Industry associations

12

INVESTMENTS Construction Equipment

November 2010

Investments

The GoIs 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 Deeres backhoe loaders, front loaders and four wheel December 2010 Electromech Material Handling Systems 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 Indias US$ 10.4-million (INR 500-million) earth-moving equipment-manufacturing project (phase I) in Andhra Pradesh January 2011

Telco Construction Equipments earth-moving machinery project (Phase II) March 2011 Caterpillar Indias US$ 264.16-million (INR 12.68 billion) heavy engineering equipment December 2012.

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

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CONSTRUCTION EQUIPMENT

November 2010

Contents
Advantage India Market overview Investments Policy and regulatory framework Opportunities Industry associations

14

POLICY & REGULATORY FRAMEWORK Construction Equipment November 2010

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 20092010, 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

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CONSTRUCTION EQUIPMENT

November 2010

Contents
Advantage India Market overview Investments Policy and regulatory framework Opportunities Industry associations

16

OPPORTUNITIES Construction Equipment

November 2010

Opportunities (1/2)

The GoIs 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 200809 to around 9 per cent by 2014. The GoI has announced that investment in the infrastructure sector is expected to total US$1 trillion in the Twelfth Five Year Plan (201217), compared with US$ 514.04 billion in the Eleventh Five Year Plan (20072012). 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.

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.

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OPPORTUNITIES Construction Equipment

November 2010

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 segments contribution to the industry is likely to double to 16 per cent by 2015.

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.

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CONSTRUCTION EQUIPMENT

November 2010

Contents
Advantage India Market overview Investments Policy and regulatory framework Opportunities Industry associations

19

INDUSTRY ASSOCIATIONS Construction Equipment November 2010

Industry associations
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

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NOTE Construction Equipment

November 2010

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

Conversion rate used: US$ 1= INR 48

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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 IBEFs 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.

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