Overview of Infrastructure Construction Equipment Industry

As more and more money is spent on infrastructure, the demand for equipment will increase. $492bn is allocated to infrastructure in 11^th five year plan. A part of this will be used in contracting Infrastructure and Construction Equipment (ICE). About 4%-24% of infrastructure project cost is attributed to equipment costs. Over the last two years, ICE industry is growing at about 30%.

Drivers for ICE:
1. Construction companies want to rent equipment to keep their balance sheets lean
2. Even smaller equipment companies are getting easy credit to purchase equipment
3. Some equipment financing companies are focusing on small and medium sized equipment companies
4. Financing companies have an oversight on their clients providing expertise during the loan period
5. Domestic demand for ICE is clearly visible. Only after that can these companies look at exports (for which low cost manufacturing base and R&D capabilities are necessary)
6. Capacity expansion is seen in the future
7. Product line expansion is also visible

Stock Specific:
1. Sanghvi Movers has a fleet of 260 cranes and enjoys 50% market share
2. Action Construction Equipment, BEML and Gremach Infrastructure Equipments are companies that are active and have to be watched in this space
3. SREI Finance provides finance for such ICE companies
4. Techpro is one company that might see the light of markets through an IPO soon

Foreign Interest:
1. PE players are also moving in this sector. Darbey Overseas of US has pumped in $17mn in Escorts Construction Equipment. GIC of Singapore & IDFC funded $50mn to Quipo
2. Foreign players have set up Indian subsidiaries like in the case of JCB (UK) & Schwing Stetter (Germany). JCB sub has seen 300% increase in revenues in five years
3. Foreign players have also entered into JVs like Terex Corp (US) and Vectra Ltd (UK). Caterpillar & GMMCO, Komatsu & L&T, Hitachi & Telco Construction Equipment company are few examples of foreign players having alliances with Indian players. With companies like Scania of Sweden (to tie up with L&T) & Yanmar Construction Equipment, this sector could see more action

Challenges to existing domestic players:
1. Competition from foreign players
2. Chinese imports may hit the market
3. Imports from any other low cost country

Key differentiators for domestic players that could withstand challenges:
1. First Mover Advantage
2. Product Mix
3. Distribution Network
4. Technology
5. Alliances
6. Pricing
7. After sales service

Source: Facts & Figures have been referenced from Business Line