India's tangible progress

10 April 2008

China's Sany has established its own Indian rental business with a fleet of 100 concrete pumps, grad

China's Sany has established its own Indian rental business with a fleet of 100 concrete pumps, graders, crawler cranes and piling rigs.

There is a debate about the long-term prospects for the construction business in India, writes Chris Sleight, but it is widely agreed that construction will continue to boom on the back of massive infrastructure spending, and with it will come a more mature rental sector.

The development in rental over the last few years is tangible, with Caterpillar, for example, now operating 12 Cat Rental Stores in the country – six opened by GMMCO, Cat's dealer in the southern parts of the country, and six by TIL in the northern provinces.

opportunities

Although the rental market is difficult to quantify, Caterpillar sees growing penetration. According to Wilson Hu, Caterpillar's rental consultant in Asia Pacific, only about 1% of Cat products sold in India in 2005 went into the rental channel, compared to 5% in 2007. He says Caterpillar has a general benchmark target of 10% of equipment going into the rental channel in developing markets.

Indeed, the success of the Cat rental stores has been such that other manufacturers are looking at the rental sector. Rajiv Chaturvedi, channel management and dealer development divisional manager for Telcon - a joint venture between Hitachi and Tata, and one of the largest players in India - told IRN, “Rental is a promising area. It has already taken root in sectors like car rental. We are looking at getting into this in future. Telcon will have an advantage because of our network and we believe rental is going to be popular.”

But the most recognised rental brand in India is Quipo, which is owned by construction equipment financing company SREI. The company has an asset base of more than US$125 million (€87 million), and according to its vice president for India's eastern region, H.S. Bhattacharjya, the company invested more than INR 100 crore (US$25.5 million, €17.9 million) in its 700 machine fleet in 2007.

He described the company as being “very bullish,” about the prospects for rental in India. “We expect growth of 200% over the next two years,” he said.

Another manufacturer, China's Sany, has taken a different approach from Telcon and Cat, establishing its own rental fleet of 100 trailer- and truck-mounted concrete pumps, graders, crawler cranes and piling rigs.

China entry

The company sold its first machine in India in 2005, and as a newcomer to the country it saw rental as a way to increase its profile and brand recognition. “We started off with the rental business. Unless customers try something first they won't buy, and we wanted to demonstrate the productivity and reliability of our machines,” said Sany's chief marketing officer in India, Brahmanand Pandey.

The backdrop remains an extremely buoyant construction market. A report by consultant McKinsey, commissioned by the Confederation of Indian Industry (CII), says the country's construction equipment industry has the potential to grow five-fold by 2016, from the present US$2.7 billion (€1.9 billion) market size to around US$10 billion (€7 billion).

Ranaveer Sinma, the managing director of Telcon, told IRN this prediction was, “a no-brainer.” However, Mathew Taylor, chief operating officer of JCB, the dominant force in India's massive backhoe sector, was more cautious. “Over confidence can very quickly create over-capacity,” he said.

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