Construction Equipment: September 2009

CONSTRUCTION EQUIPMENT
September 2009
1
CONSTRUCTION EQUIPMENT September 2009
Indian construction equipment market among the top 10

• In 2007, the size of the Indian construction equipment Construction and material handling
market was about US$ 2.4 billion to US$ 2.64 billion, equipment industry (2004)
a fraction of the US$ 75 billion global market.
• The market grew more than 30 per cent over 2006 in

comparison to a growth of 5 per cent globally.
• The Indian market comprises 200 domestic

manufacturers (small, medium and large) and the top
six players account for about 60 per cent of the
market.
• The import market was in excess of US$ 375 million

in 2007.
• There is a huge scope to improve revenues from

services for construction equipment.
• Global service revenues scaled up 11 per cent to 20

per cent as compared to Indian companies. Source: CII-KPMG Report on Infrastructure Equipment, KPMG
analysis
• Exports are expected to be worth US$ 100 million to

US$ 200 million by 2010, after having registered a
compound annual growth rate (CAGR) of 30 per cent
over the period 2001 to 2005.
Sources: CII-KPMG Report, Indian Infrastructure Equipment Magazine, KPMG analysis;
Construction Equipment, IBEF
2
The industry has four major segments

Construction
equipment
industry
Earth moving Construction Material

Construction
equipment vehicles handling
equipment
equipment
Tunneling
Excavators Backhoe Dumpers Cranes and drilling Road rollers
equipment
Loaders Bull dozers Concrete Hot mix

Tankers Conveyors
mixers plant
Skid steer Road making

Trenchers Stone
loaders Tippers Forklifts machines
crushers
(compactors)
Motor Motor Slurry seal

graders scrappers Trailers Hoists Pavers
machines
Wheeled Spraying and

Crawler Heavy duty
loading plastering
loaders pumps
shovels machines
3
Industry dominated by earthmoving equipment … (1/4)
• Excavators registered a CAGR of 30 Construction equipment industry structure in 2007

per cent.
• High-end excavators are in more

demand than lower-end excavators.
• The lower-end demand is from

irrigation projects.
• The higher-end demand is from the

mining and cement industries.
• New technology, end-to-end solutions

are important. Material handling Concrete equipment
Road construction Tunneling and drilling

equipment for mining
Material Earthmoving
preparation equipment
Sources: KPMG analysis, industry sources
4
Earthmoving equipment segment Forecast industry structure for 2015-16

total market size ~US$ 1.4 billion (2007)
Sources: Industry sources; primary research; CII-KPMG report; KPMG analysis
5

Backhoe market
• The backhoe market is highly mature.
• It is the second-largest market in the

world. CAGR
units
37%
• For 2008, the expected growth rate
was 11 per cent.
• JCB India has a 70 per cent market

share.
• Imports are likely to decrease with

increasing demand for end-to-end
solutions. Sources: Industry sources, KPMG analysis
6
• A total of about 1,321 units were sold in Loader market

2005–06.
• The loader market registered a CAGR of 41

per cent over the period 2002 to 2006. CAGR
41%
The segment was expected to grow at about
units
•
10 per cent over the period 2007 to 2009.
• Lower capacity equipment is growing at a

higher rate as most of the customers are
first-time buyers.
• Comprehensive maintenance and service

support is important.
Sources: Industry sources, KPMG analysis
• Iron ore mining activities create the major

demand for loaders in the country.
7
Growth in material handling equipment segment
• The material handling equipment is dominated by Material handling equipment market share
cranes and forklifts. Total market size ~US$ 325 million (2007)
• Forklifts are selected on the basis of power inputs

and pollution.
• The segment exhibited a CAGR of 20 per cent from

2005 to 2007 and was expected to have a growth of
11 per cent in 2008.
• The demand is largely from F&B, retail and

automobile sectors.
• Palletisation and containerisation are expected to

increase demand.
Sources: Industry sources, KPMG analysis
• Price and cost efficiency is important.
8
Growth in material handling equipment segment

Volume terms ~2,150 units (2007) Value terms ~US$ 38 million (2007)
LPG LPG
Battery 2% Battery 3%
15% 14%
Diesel
Diesel 83%
83%
Sources: Industry sources, KPMG analysis Sources: Industry sources, KPMG analysis
• Pick-n-carry cranes account for 50 per cent of the cranes market.

• They grew at a CAGR of 72 per cent over the period 2004 to 2007.
• The segment was likely to exhibit a CAGR of 10 per cent in 2008.
• Key drivers are construction and industrial sectors.
• Slew and tower cranes witnessed 34 per cent and 71 per cent CAGR, respectively, over the period 2005 to 2007.
9
Construction equipment and vehicles
• Road construction equipment had a market share of US$ 175 million in 2006.
• In the segment, compactors contributed US$ 48 million in 2005–06.
• Compactors registered a CAGR of 20 per cent over the period 2003 to 2006.
• Demand will be driven by road construction, irrigation projects, power and other construction projects.
• The competitive advantage of construction equipment lies in technological superiority.
• Relationship with large organised buyers is important.
10
Investments in user industries to drive industry … (1/4)
• As of 2009, the Indian construction industry, at Indian construction industry split (2009)
current prices, contributed more than US$ 91
billion to the country’s gross domestic product
(GDP).
• It employs more than 18 million people.
• Construction investments accounted for 11 per

cent of GDP and 50 per cent of gross fixed
capital formation.
• Construction activity has grown at 11 per cent

• Construction equipment accounts for 5 per

cent to 24 per cent of construction project • Construction equipment accounts for 22
costs. per cent of road construction costs.
11
Total planned road investments (by segments), 2005-10 ADB leading for transport sector projects
US$ 1,000
US$ Billion
GQ+NSEW Non-NHDP States and rural Total Lending Non-Lending

(III,IV,V) roads
Sources : NHAI, Budget and Plan Documents E= Estimated
12
• Investment in safe water supply and Total planned urban infrastructure

sanitation services is expected to touch
US$ 41.2 billion in 2009–10.
• Urban transport infrastructure
US$ billion
investments in cities with populations of
100,000 or more during the next 20
years would be around US$ 49.3 billion.
• Investments in urban infrastructure have

grown at a CAGR of 12.9 per cent over
the period 2006 to 2009.
Sources: CRIS INFAC, SSKI Research

E = Estimated
13
• Investments worth US$ 10.1 billion are expected in

irrigation projects over the period 2006 to 2010.
• Over 300 irrigation projects were taken up as a part

of the Tenth Five-Year Plan.
• Under the plan, US$ 1 billion was allocated for

repair, renovation and restoration of 20,000 water
bodies with a command area of 1.47 million hectares.
• There is an increased emphasis on state government

irrigational activities.
• The Andhra Pradesh government is expected to

spend US$ 8.8 billion on irrigation projects from
2009 to 2014.
• 60 per cent of irrigation investment goes into

construction, of which 21 per cent is on construction
equipment.
14
Ports, airports and railways to drive construction equipment

demand … (1/2)
• Investment in major and minor ports was expected to be about US$ 18 billion in 2008.
• Cargo handled by ports in 2008 was expected to grow at 8 per cent.
• Domestic and international inbound and outbound traffic is expected to increase over the coming years.
• The investment in developing airports is likely to be US$ 9 billion over the period 2008 to 2011.
• The estimated cost in upgrading airports in metros is US$ 2.2 billion.
• Privatisation of ports and airports to increase investments.
• The government would need to make an investment of US$ 820 billion in relaying railway tracks and
improving the existing network.
• Gas discoveries are likely to lead to an increase in pipeline networks, spurring demand for construction
equipment. An estimated 18,671 km. of a domestic oil and gas pipeline network was expected to be laid
15
Ports, airports and railways to drive construction equipment

demand … (2/2)
• India is witnessing a huge boom in residential, Real estate development
commercial and retail construction.
• The construction of 16 billion sq ft is expected by

2010.
US$ billion
• Real estate is likely to account for 61 per cent of
total investment in the construction industry over
the period 2008 to 2011.
2003-05 2006–08
Source: CRIS INFAC Construction Report
16
Growth in industrial investment to help construction

equipment growth … (1/5)
IIP growth over the years
300
250 236.9 243.5

223.6
182.4 193 204.7
200
163.7 171.9
(Units)
150
(units)
100
50
0
2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008-
02 03 04 05 06 07 08 09
Note: IIP Base Year 1980-81
17

Total finished steel trend
• Steel majors are undertaking large
capacity expansions.
• The steel industry has an expected
1000 tonnes
capex outlay of US$ 15.4 billion to
meet the needs of infrastructure
projects, consumer durables,
automobile and construction
industries over the Eleventh Plan
period (2007–2012).
• Steel is expected to register 9 per

cent to 10 per cent growth over the
period 2009 to 2014.
Source: Ministry of Steel
18

Installed capacity at the end of the 11th Plan period
• The power sector is expected to see
investments worth US$ 96.5 billion over the
next 10 years for capacity generation addition.
• Installed capacity is likely to increase to 212,000

MW by 2012 against 115,000 MW at present.
MW
• The estimated investment until 2009 is about
US$ 37.6 billion, implying demand worth US$
4.6 billion for construction equipment.
• The engineering industry has an opportunity of

US$ 68 billion because of US$ 192 billion capex Source: Ministry of Power
planned over the next decade. E = Estimated
19

• The organised retail sector in India is expected to Growth of organised retailing
grow at a CAGR of 32 per cent over the next 10
years.
US$ Billion
• Growth in organised retailing would drive organised
logistics and warehousing industries.
Source: Morgan Stanley research

E = Estimated
20

India refining capacity demand-supply
• The growth in throughput is 10 per cent over the
period 2006 to 2010. 200 Refining throughput
180
160
140
• India has 355 opencast mechanised mines; 73 foreign 120
100
direct investment (FDI) proposals worth US$ 830 80
60
million in the mining sector are still to be approved. 40
20
0
2005 2006 2007 (F) 2008 (F) 2009 (F) 2010 (F)
• Coal mining accounts for 80 per cent of mining Oil consumption Refining throughput
activity in India.
Sources: Companies, ABN AMRO research; F = Forecasted
MT = million tonnes
• The expected growth in coal mining is 40 per cent in
the next five years and almost double by 2020.
• A capex of US$ 4.8 billion is planned in the mining

sector as per the Eleventh Five-Year Plan.
• Privatisation of coal mining will increase power

generation.
21
Success factors for manufacturers
After-sales services Indian manufacturers do not earn much in after-sales when compared
to global majors; manufacturers have to provide constant after-sales
services to customers.
Focus on R&D Manufacturers should provide customised solutions by providing
and additional accessories. Innovation is possible by understanding the
innovation customer profile and R&D would be necessary for customisation; customer
training and education should be done in parallel with product
technology development.
Providing end-to-end The construction equipment-user industry is cost conscious and, hence, it
solutions is important for manufacturers to provide end-to-end solutions. This
would include equipment manufacturing, resale of equipment by providing
new customer leads, rental options, best finance options for buying
equipment in association with financial institutions, etc. Manufacturers
should act as one-stop shops for customers.
Forming industry Manufacturers should strengthen industry associations. A good industry

associations association provides a platform for technological discussions and
will lead to consolidation.
22
Industry snapshot Threat of substitute

- LOW
• Every construction equipment has a
specific purpose
• Substitutes could only be through value
addition through technology, comfort
maintenance etc.
• Complete substitution may not happen in
near future. Product replacement or
enhancement is possible
Bargaining power of Bargaining power of
suppliers-HIGH buyers-MODERATE
Inter-firm rivalry • Earlier, manufacturers/sellers held

• Suppliers have not kept pace with growth - MODERATE sway because of huge demand
in demand, leading to delayed deliveries • Price and service are the differentiators • With the entry of new players, this
• Import of some critical components • Lack in sharp differentiation leading to trends expected to change
• Volatility of steel prices impacting • Manufacturers now are providing end-
competition in price
production cost to-end solutions to buyers
• Huge demand for construction equipment
• Less number of suppliers for high demand
in future
• Well-established players and recognised players

• Cheaper imports can reduce the market share
of present manufacturers
• Increasing growth in demand
• Players with technological know-how can
succeed, as technology is the major entry barrier
Barriers of entry
- LOW
23
Business models/strategies
• Foreign investors can enter the domestic market by setting up marketing companies. This allows them to
establish a brand and also, at a later stage, to establish their own manufacturing units.
• A foreign investor or manufacturer could have a joint venture with an Indian partner through technology
transfer. Any product that has better installed technology has greater demand compared to its competition.
Potential customers have to be made aware of technological advancements. There is huge impact on
equipment performance, monitoring, features and usage due to technological advancements.
• A foreign investor could associate with an Indian manufacturer whose processes are good by providing
monetary support to establish more manufacturing units.
• A foreign player can also help Indian manufacturers in providing after-sales services. It has been noticed that
the revenues earned by international players through services are high when compared to Indian players.
• The business of rentals and leasing is more lucrative globally in comparison with the Indian rental and
leasing market. Rentals and leasing penetration is expected to increase; the rentals market has the potential
of being a US$ 700 million business by 2010 and leasing of construction equipment is expected to go up
from the present 5 per cent to 15 per cent.
24
Supporting government regulations and policies
• 100 per cent FDI allowed in manufacturing projects
• Exemption from obtaining an industrial license
• Manufacturers are free to select project location
• Import duties reduced to encourage imports
• Exports from export-oriented units (EOUs), special economic zones (SEZs) and export processing units
(EPUs) are encouraged
• Locations with high growth potential to be supported by government to bridge technology and productivity
gaps; skills’ upgradation, physical infrastructure, environmental mitigation facilities to be provided by
government in selected areas of intervention
• Schemes similar to SEZs can be developed for EOUs with capital investment in plant and machinery over
US$ 6 million (Rs 25 crore)
25
Attractive states/locations
States with attractive features/policies for the construction equipment sector have been identified based on
the growth of user industries, government initiatives and other factor conditions such as exports, R&D
infrastructure, quality manpower, etc. Following are the states that are attractive for the construction
equipment industry:
• Andhra Pradesh • Chhattisgarh

• Gujarat • Kerala
• Himachal Pradesh • Maharashtra
• Karnataka • Tamil Nadu
• Rajasthan • Madhya Pradesh
• Punjab
26
Key takeaways … (1/2)

• The Indian construction equipment industry grew at a rate of 30 per cent over the period 2005 to 2007.
• India has a vast technical talent base, an established component vendor base and low labour rates, all of which
lend it the distinct advantage of becoming an export hub for the Middle East and South-east Asian markets.
India can also be regarded as a future R&D hub for international giants because of low R&D manpower costs.
• In this customer-driven market, it is important for manufacturers to provide end-to-end solutions. After-sales
support and offering of financial options is important for players in the construction equipment market.
• India is following the international trend of consolidation in the industry; most Indian manufacturers are
associating with international majors on the technological front.
• For international firms looking to enter the Indian market, the time is right with investments soaring up in
each of the construction segments as shown earlier.
• The barriers of entry are low, as there is huge demand for the future.
• Though the bargaining power of suppliers is high, manufacturers can import components to completely
manufacture construction equipment and cater to growing demand.
27
Key takeaways … (2/2)
• Excavators and construction equipment are expected to witness huge demand in the future with large-
scale infrastructure plans in place in the country.
• Material handling equipment will also have huge demand with growth and improvement in retail, ports,
airports and other relevant industries.
• There is opportunity for foreign investors to enter the material handling equipment and road construction
equipment industry owing the segments’ fragmentation.
• With investments to the scale of US$ 700 billion to US$ 800 billion planned in all the relevant user
industries of construction equipment, this is the best time for construction equipment manufacturers.
28
Profile of key players … (1/5)
JCB India • JCB came to India in 1979.

• The company had a turnover of US$ 335 million in 2006–07.
• The company is growing by 25 per cent to 30 per cent annually.
• JCB India is a subsidiary of J C Bamford Excavators Ltd
• Its products range from backhoe loaders, wheeled loaders to excavators and
skid steer loaders.
• It has a 70 per cent market share in the backhoe loader segment and around
13 per cent market share in the overall Indian construction equipment industry.
• It has facilities at Ballabgarh in Haryana and Pune in Maharastra.
• The company has 38 dealers and 206 outlets.
• It has a dedicated parts centre at Ballabgarh and parts distribution depots at
Chennai, Pune and Kolkata.
Bharat Earth • BEML is the largest player in the earthmoving equipment sector.
Movers • The company turnover was around US$ 630 million in 2007–08.
Ltd (BEML) • The mining and construction equipment segment is around 63.3 per cent; defence
segment is about 31.8 per cent; and railways around 4.9 per cent.
• The company is the largest public sector undertaking in this industry.
• Some of its customers are Delhi Metro Rail Corporation, Coal India,
Jessop Co. Ltd.
• It has facilities in Bangalore, Kolar Gold Fields, and Mysore in Karnataka.
• The company has a 70 per cent market share in the domestic earthmover industry
and 12 per cent in the overall construction equipment industry.
• It has 33 marketing offices and has a strong foothold in the government sector.
29
L&T Case • The companies together had a turnover of US$ 156 million in 2007. Both the
L&T Komatsu companies are subsidiaries of L&T Ltd.
• They are joint ventures with CNH American LLC and Komatsu Asia Pacific Pvt
Ltd, Singapore, respectively.
• L&T Case manufactures loaders, backhoes and vibratory compactors;
while L&T Komatsu manufactures hydraulic excavators.
• L&T Case hold 21 per cent market share in vibratory compactors.
• L&T Komatsu holds 20 per cent market share in excavators.
• L&T Case has facilities at Pithampur, Madhya Pradesh.
• L&T Komatsu has its operations in Bellary, Karnataka.
Ingersoll-Rand • The public limited company (majority owned by Ingersoll-Rand) is a market leader
India Ltd in compactors and had a turnover of Rs 388 crore in 2007.
• It is primarily into construction technology and compact vehicles, air
solutions and climate control.
• The company has a 39 per cent market share in the compactor segment.
• Its major products are compaction equipment, pavers, loaders, light towers,
air compressors, etc.
• The company has operations in Bengaluru and Ahmedabad and has a good
distribution network with 22 company offices and 80 distributors across India.
30
Tractors India • This public limited company is a market leader in the slew cranes segment in India.
Ltd (TIL) • It had a turnover of Rs 842 crore 2007.
• Its product range includes slew cranes, earthmoving equipment, diesel generating
sets, forklifts, etc.
• It has a 32 per cent market share in the slew crane segment.
• It has its facilities at Kamarhatty in West Bengal and Sahibabad in Uttar Pradesh.
• The company has 33 Indian and four overseas offices in its distribution network.
Telco Construction • The company is a market leader in excavators.
Equipment • It has collaborations with Hitachi Construction Machinery Company, Japan,
Company for hydraulic excavator and cranes; John Deere, USA, for backhoe loader technology;
Ltd (Telcon) and with CESAN, Turkey, for asphalt plants.
• It is a subsidiary of Tata Motors and had a turnover of Rs 2,143 crore in 2008-09.
• Its major products are excavators, loaders, mechanical shovels, high tonnage
crawler cranes, etc.
• The company has a 50 per cent market share in the excavator segment and an overall
market share in the construction equipment segment of 11 per cent.
• The Tata Group of companies, government enterprises and contractors are its major
customers. It has facilities installed at Jamshedpur in Jharkhand and Dharwad
in Karnataka.
• Its marketing network is spread across India and three international locations.
31
Voltas • This public limited company is a part of the Tata Group is the second-largest player
in the forklifts segment. Its customers are largely engineering industries.
• Its products include industrial air conditioning and refrigeration equipment, air
conditioners, water coolers, freezers, commercial refrigerators, forklift trucks and
large water supply pumps.
• The company had a turnover of US$ 852.6 million in 2008–09, of which less than 7
per cent is accounted by the material handling division.
• It has a 31 per cent share in the forklifts segment. Its facilities are in Thane,
Maharastra; Union territory of Dadar; and Sanathnagar in Andhra Pradesh.
• Voltas has its head office at Mumbai and zonal headquarters at Mumbai, Kolkata,
New Delhi and Chennai.
• It has territorial offices in eight more Indian cities and three international locations.
Godrej & Boyce • This private limited company’s product list includes forklifts (diesel, electric, battery).
Mfg. Co. Ltd • It holds a 48 per cent market share in the forklifts segment.
• The company had a turnover of US$ 402.6 million in 2007.
• Its major customers are airline operators, automobile industry, FMCG,
pharmaceutical industry, and oil and petroleum industry.
• It has facilities at Mumbai, Maharashtra, and 14 branches and 20 dealers
across India. The company is a market leader in forklift trucks (both in the diesel and battery variants).
32
Escorts • It pioneered the manufacture of pick-and-carry cranes in India.

Construction • The company is a subsidiary of Escorts Ltd It had a turnover of US$ 61 million
Equipment Ltd in 2007.
(ECEL) • The company holds a 56 per cent market share of the domestic pick-and-carry
market.
• It has facilities at Faridabad, Haryana.
• Its product range includes pick-and-carry cranes, slew cranes, articulated
boom cranes, tower cranes, forklift trucks, front-end loaders, vibratory soil compactor, tandem
vibratory rollers, etc.
• The company has 16 ECEL business centres and 54 dealer locations.
Action Construction • This public limited company had a turnover of US$ 84.38 million in 2008–09.
Equipment Ltd • Its product range includes hydraulic mobile pick-n-move cranes, forklift trucks,
(ACE) loaders, tower cranes, aerial work platforms, lifts, lorry loaders/truck mounted
cranes, etc.
• It has a 41 per cent share in the pick-and-carry cranes segment.
• It has its facilities at Faridabad in Haryana.
• ACE has eight offices and 33 dealer locations across India.
• The turnover of the company has grown at a CAGR of approximately
96 per cent over the last four years. The company has plans of diversifying
its product portfolio to include truck mounted cranes, forklifts and backhoes.
33
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34

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What are the major segments of the construction equipment industry?

What are the major segments of the construction equipment industry?

Which segment dominates the Indian construction equipment market?

Which segment dominates the Indian construction equipment market?

CONSTRUCTION EQUIPMENT

Indian construction equipment market among the top 10

• The market grew more than 30 per cent over 2006 in

• The Indian market comprises 200 domestic

• The import market was in excess of US$ 375 million

• There is a huge scope to improve revenues from

• Global service revenues scaled up 11 per cent to 20

• Exports are expected to be worth US$ 100 million to

The industry has four major segments

Earth moving Construction Material

Loaders Bull dozers Concrete Hot mix

Skid steer Road making

Motor Motor Slurry seal

Wheeled Spraying and

Industry dominated by earthmoving equipment … (1/4)

• Excavators registered a CAGR of 30 Construction equipment industry structure in 2007

• High-end excavators are in more

• The lower-end demand is from

• The higher-end demand is from the

• New technology, end-to-end solutions

Road construction Tunneling and drilling

Sources: KPMG analysis, industry sources

Industry dominated by earthmoving equipment … (2/4)

Earthmoving equipment segment Forecast industry structure for 2015-16

Sources: Industry sources; primary research; CII-KPMG report; KPMG analysis

Industry dominated by earthmoving equipment … (3/4)

• It is the second-largest market in the

• JCB India has a 70 per cent market

• Imports are likely to decrease with

Industry dominated by earthmoving equipment … (4/4)

• A total of about 1,321 units were sold in Loader market

• The loader market registered a CAGR of 41

• Lower capacity equipment is growing at a

• Comprehensive maintenance and service

• Iron ore mining activities create the major

Growth in material handling equipment segment

• Forklifts are selected on the basis of power inputs

• The segment exhibited a CAGR of 20 per cent from

• The demand is largely from F&B, retail and

• Palletisation and containerisation are expected to

Growth in material handling equipment segment

• Pick-n-carry cranes account for 50 per cent of the cranes market.

Construction equipment and vehicles

• In the segment, compactors contributed US$ 48 million in 2005–06.

• The competitive advantage of construction equipment lies in technological superiority.

• Relationship with large organised buyers is important.

Investments in user industries to drive industry … (1/4)

• It employs more than 18 million people.

• Construction investments accounted for 11 per

• Construction activity has grown at 11 per cent

• Construction equipment accounts for 5 per

Investments in user industries to drive industry … (2/4)

GQ+NSEW Non-NHDP States and rural Total Lending Non-Lending

Investments in user industries to drive industry … (3/4)

• Investment in safe water supply and Total planned urban infrastructure