05 June 2020

Guest Article- Rajinder Raina, Sr VP, MACONS Equipment

Indian CE industry

 

 

A Granular analysis by
RAJINDER RAINA, SR. VICE PRESIDENT,
MACONS EQUIPMENTS.

 

 

 

 

 

 

 

 

 

 

Indian Construction equipment Industry is essentially a matrix of Manufacturer / Trader + Dealership + Financer + Buyer / User. In the last two decades in particular these four stakeholders have come a long way to work together to help the market develop/evolve. Whereas a lot has been put in place, more remains to be done to call it a mature market. Let us analyse each one of the four,their interdependence & cooperation. Will also talk about the accelerators and the impediments. This will help the industry as a whole and may benefit some players to alter or tweak their strategies at the front end.

 

 

Manufacturers/suppliers:

 

It is interesting to note that Forklift trucks were one of the earliest machines to enter Indian market, in 1960s. This was followed by Excavators, Cranes in 70s, Backhoe Loaders and Vibratory compactors in 80s. 1990s saw a host of other equipment make foray into the market. This sequence was at variance with most of the developed and developing markets in Europe & Asia. For the last 4 decades Excavators+Cranes+Backhoe Loaders+Forklifts comprise more than 80% of the total market by volume as well as value. This is unique to India and I don’t see this change in the next decade as well.This has resulted in absence of Tyred Excavators,low market size of Pay loaders & dozers etc. Even the Mini Excavator market started growing very late, post 2015. The point being made is that all this is not based purely on technical rationale/reason. Early mover product/brand/concept has a big advantage in India.

 

 

Marketing Apparatus:

 

This industry is highly service intensive. From1995,as the supply exceeded demand two factors came into play:

 

a) Manufacturers has to ensure high uptime/reduce the meantime between break downs & the user has to sweat out his equipment to the maximum possible extent. This asks for high quality after sales service. With the expanse getting geographically wider the only or the most economically viable solution was to go through the dealerships. This gave longevity, multiplier effect & proximity to buyer/user & the work site. Ex stock availability of equipment & parts coupled with sales & service skill sets made it the biggest differentiator at the front end. Today,a company is as robust as its network & it has become one of the top criteria for the buyer to choose between available options. Dealerships are the way forward for leadership.

 

Finance: Till early 1990, getting a construction equipment financed was a nightmare. The choice was very limited,the process was long & arduous, rates very high & penalties stringent. Getting finance lease/hire purchase for an asset value of more than 75% waswell-nigh impossible unless you had a proven track record & jobwork in hand. Mid 1990s saw a number of NBFCs enter the market.This made fiancé accessible to first time buyers & users & at better rates. This was one of the major reasons behind the surge in demand for equipment.

 

Over the years financing has been increasingly playing the role of a catalyst for demand.Manufacturers entered into special agreements with financers, created “Special Purpose Vehicles” for dedicated financing & risk mitigation. The suppliers also partnered the financers with buy back/re sale of repossessed equipment & creation of escrow accounts/funds to cater to delinquent cases. Such tripartite agreement helped risk apportioning, liquidity & better post sale management of equipment.

 

Some of the manufacturers have started their own finance companies to provide an end to end solution to the customer.This has helped companies to workout innovative schemesfor their products & package deals. One of the common features is dealership financing for encouraging stock & sale which creates market pull for the specific brand. Out of the box initiatives for financing will hold the key for better market shares& there are possibilities galore.

 

 

Buyer/user:

 

The two can be the same or different entities. Of late the bias is towards the two being separate. There are various reasons for it but we are still below the Global ratio in this aspect.

 

Rentals sector: In India is still an unorganised sector. There are a number of fleet owners who operate various fleet sizes of equipment. There were some rental companies that entered the market with potential to have a large fleet size & had the financial muscle to do so. The major problem with these companies was that their offerings did not go beyond equipment & operator on dry or wet lease basis. They lacked the domain or application expertise to add value that could be the USP for them to earn from. It was limited to outsourcing of equipment. They did not have it in them to offer high productivity by operating the equipment at its optimum performance levels. One of the reasons was not having highly skilled operators. I say it with some authority at my command that 75% of the equipment in India is operated under 75% efficiency levels which ought to be an average 90%.

 

The earnings for the fleet owners & the savings for the companies going in for rentals lie in this 15% gap. It is this play which will come through professional operations that will create structured rental market in India. The cost of owning & operating has to go down. It is the rental market that helps the market evolve/grow.

 

Rental/Hiring segment needs a few big players who bring in Scientifics, efficiency & domain expertise to provide value added services that gets paid for.The failure of some of the players in the past should not deter the new ones from entering the rental market.There is market & meat enough here.

 

The vulnerability of the industrycomes from  low profit margins & that makes it all the more important that costs are cut at every level by maximising efficiency right from the material input quality to minimum warranty costs to high value added after sales back up. The good news is that the parts business is a great saviour as the equipment consumes parts provided we ensure that it runs more than 2500 ~3000 hrs per year on an average.

 

Will talk about making the equipment versatile, in part II of this essay.




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