Material Handeling Equipment Study

COMPREHENSIVE PROJECT – I

ON

“CONSTRUCTION EQUIPMENT INDUSTRY”

Under the partial Fulfillment

of

the requirement for MBA Programme

Submitted by:

Animesh Nautiyal (09F04)

Falguni Shah (09F12)

Pradeesh Krishnan (09M28)

Roma Yadav (09M35)

Under the Guidance of:

Prof. (Dr.) R. P. Patel

G.H. Patel P. G. Institute of Business Management

Sardar Patel University

Vallabh Vidyanagar

December 2010

Construction Equipment Industry


ACKNOWLEDGEMENT

Many have contributed to the successful preparation of this report. We would like to place on

record our grateful thanks to each one of them. We have great pleasure in submitting this

report on “Construction Equipment Industry” as part of our Comprehensive Project-I work.

We take this opportunity to Prof. (Dr.) H.J. Jani Director of GHPIBM for allowing us to

carry out this project to get practical knowledge along with the theoretical knowledge.

We are expressing our gratitude to Prof. (Dr.) R. P. Patel for providing us necessary

information that we need to complete this project. His cooperation shaped our ideas into

concrete project report.

We are also grateful to Dr. P. K. Priyan for equipping us with financial knowledge which was

necessary to complete this project.

Thank you all.




Roma Yadav (09M35)


DECLARATIONWe, hereby declare that the report on “Comprehensive Project-I” entitled “Study of Construction Equipment Industry” is a result of our own work and our indebtedness to other work publications which have been duly acknowledged.

Place: V.V. Nagar

December 2010




Roma Yadav (09M35)


PREFACE

Theoretical knowledge and practical knowledge are two sides of same coin. So studying only theoretical knowledge between four walls of classroom is surely an incomplete circle. Experience of analyzing industry will be helpful in completing this circle.

With a wide production capacity base, India is perhaps the only developing country, which is totally self-reliant in highly sophisticated equipment like earth moving equipments, material handling equipments, road construction equipments and other machineries.

Indian construction equipment industry is mainly driven by Material Handling Equipments. Though the Indian construction equipment industry is a fraction of the global market, whose size is over US$ 75 billion, it has been growing at an average of 30 per cent annually compared to the global growth of 5 per cent. India is one among the top 10 markets for construction equipment and is one of the key international markets.

In this report we have studied the major players and their profile, market opportunities, trade policies, demand and supply analysis, financial analysis of an industry, Internal and external factors affecting an industry, etc.

G. H. Patel P. G. Institute of Business Management i


EXECUTIVE SUMMARYThe growth in Indian economy has led to the development of Construction and Material Handling equipments. The demand for Construction and Material Handling Equipments is correlated with the growth of other segments. There are three key driver of this industry; investments, capacity expansion and emerging growth areas. The product portfolio of this industry comprise of machineries of different fields like bulldozer, forklift, motor grader, wheel loader, cranes etc. there has been spectacular growth in sales in domestic as well as exports.

The industry’s operating profit margin moves up from approximately 9 percent in the year 2006 to 16 percent in the year 2010, which means industry is keeping its cost under control and sales are increasing faster than costs. The dividend declared by various companies in this industry is not good enough because this industry is capital intensive and most of its profit is reinvested for capacity creation or technology enhancement. The debt taken by industry is fewer, which means industry has less leverage and has stronger equity position. The major cost involved in this industry is cost of raw material and cost of remuneration paid to the employees.

There are various internal and external factors which have an effect on industry’s performance. These factors can be analyzed by various models like PESTEL, Porter’s Five Forces and SWOT analysis. PESTEL analysis is prepared for understanding effect of external factors such as Political, Economical, Socio-cultural, Technological, Environmental, and Logical on industry’s performance. Porter’s five forces model helps in analyzing the competitive strength and position of industry. SWOT analysis for auditing organization’s performance. It is an analysis to develop strategies by matching strengths with opportunities, using opportunities to reduce weaknesses, using strengths to overcome threats and reducing weaknesses and avoiding threats.

The prospect of this industry is dazzling because country has witnessed massive investment in construction and mining industry which have paved the way for construction equipments demand to grow substantially. The construction equipment industry can contribute a lot by bringing in new technology and modernization of project management to the Indian Economy.

G. H. Patel P. G. Institute of Business Management ii


Table of Contents

PREFACE...................................................................................................................................i

EXECUTIVE SUMMARY.......................................................................................................ii

List of Figures:..........................................................................................................................iii

List of Tables..............................................................................................................................v

CHAPTER 1 INTRODUCTION...............................................................................................1

1.1 BIRTH OF INDIAN CONSTRUCTION EQUIPMENT INDUSTRY...............................1

1.2 INTRODUCTION................................................................................................................2

1.2.1 Product Range.......................................................................................................5

1.2.2 Segments...............................................................................................................6

1.3 OBJECTIVES......................................................................................................................7

1.4 SCOPE.................................................................................................................................8

1.5 METHODOLOGY...............................................................................................................9

1.6 IMPORTANCE....................................................................................................................9

1.6.1 It Is Valuable To Mining Industry........................................................................9

1.6.2 It Is Dangerous......................................................................................................9

1.6.3 Performance and Durability..................................................................................9

1.6.4 Standard Mediums..............................................................................................10

CHAPTER 2 GROWTH AND EVOLUTION........................................................................11

2.1 GROWTH OF THE INDUSTRY......................................................................................11

2.1.1 Growth in the industry is expected to be driven by 3 key drivers:.....................11

2.1.2 Present Investment..............................................................................................12

2.1.3 Production...........................................................................................................14

2.2 PRODUCT PROFILE:.......................................................................................................15

2.2.1 Backhoe...............................................................................................................15


2.2.2 Crane...................................................................................................................16

2.2.3 Wheel Loader......................................................................................................17

2.2.4 Motor Grader.......................................................................................................17

2.2.5 Forklift.................................................................................................................18

2.2.6 Bulldozer.............................................................................................................19

2.3 INNOVATION POTENTIAL:..........................................................................................20

2.3.1 Outsourcing opportunity.....................................................................................20

2.3.2 Rentals.................................................................................................................20

2.3.3 Leasing................................................................................................................21

2.3.4 Financing and end-to-end services......................................................................21

2.3.5 Exports................................................................................................................21

2.4 SUPPORTING GOVERNMENT REGULATIONS AND POLICIES.............................21

2.5 SALES GROWTH.............................................................................................................22

CHAPTER 3 DEMAND DETERMINATION........................................................................26

3.1 MARKET SITUATION AND DEMAND........................................................................26

3.2 PRICE OF THE PRODUCTS............................................................................................27

3.3 INCOME OF THE CUSTOMER......................................................................................27

3.4 PENETRATION LEVEL...................................................................................................28

3.5 AVAILABILITY OF FINANCE.......................................................................................28

3.6 REPLACEMENT DEMAND............................................................................................28

3.7 EXCISE DUTY STRUCTURE.........................................................................................29

3.8 TECHNOLOGY................................................................................................................29

CHAPTER: 4 MARKETING STRATEGIES ANALYSIS.....................................................31

4.1 MARKETING STRATEGIES...........................................................................................31

4.1.1Prioritize Customers.............................................................................................31

4.1.2 Localize Marketing.............................................................................................31

4.1.3 Create a Website.................................................................................................31


4.1.3 Become an Expert...............................................................................................32

4.1.4 Reward Referrals.................................................................................................32

4.1.5 Sell Your Specialty.............................................................................................32

4.2 KEY ISSUES AND CURRENT TRENDS IN INDIA......................................................32

4.3 SEGMENTATION AND POSITIONING........................................................................33

4.3.1 Construction Equipment growth in China:.........................................................33

4.3.2 The challenge from emerging CE players:..........................................................34

4.4 PRODUCT QUALITY......................................................................................................34

4.5 CUSTOMER SERVICE....................................................................................................35

4.5.1 Customer satisfaction..........................................................................................35

4.5.2 How to achieve customer satisfaction.................................................................35

4.6 PRICING POLICY............................................................................................................36

4.7 PROMOTION SCHEMES.................................................................................................36

4.8 DISTRIBUTION CHANNEL............................................................................................36

4.9 LOGISTICS MANAGEMENT.........................................................................................37

4.10 PROFILE OF KEY PLAYERS:......................................................................................39

4.11 KEY ISSUES AND SUCCESS FACTORS ACCORDING TO THE CURRENT TRENDS..................................................................................................................................42

4.12 MARKET SHARE OF VARIOUS SEGMENTS............................................................42

CHAPTER 5 FINANCIAL ANALYSIS.................................................................................44

5.1 PROFIT MARGIN ANALYSIS........................................................................................44

5.1.1 Gross Profit Margin.............................................................................................44

5.1.2 Operating Profit Margin......................................................................................44

5.2 PROFITABILITY ANALYSIS – INVESTMENT BASED..............................................46

5.2.1 Return on Assets.................................................................................................46

5.2.2 Return on Equity.................................................................................................47

5.2.3 Return on Capital Employed...............................................................................47


5.3 PROFITABILITY RATIOS – MARKET DRIVEN..........................................................48

5.3.1 EPS......................................................................................................................48

5.3.2 DPS.....................................................................................................................49

5.4 LEVERAGE ANALYSIS..................................................................................................50

5.4.1 Total Debt Ratio..................................................................................................50

5.4.2 Debt-to-Equity ratio............................................................................................51

5.4.3 Interest Coverage Ratio.......................................................................................52

5.5 COST STRUCTURE ANALYSIS....................................................................................52

5.6 DUPONT ANALYSIS.......................................................................................................54

CHAPTER 6 INDUSTRY ANALYSIS...................................................................................56

6.1 PESTEL ANALYSIS.........................................................................................................56

6.1.1 Political Factors:..................................................................................................57

6.1.2 Economical Factors:............................................................................................57

6.1.3 Social Factors:.....................................................................................................57

6.1.4 Technological Factors:........................................................................................57

6.1.5 Environmental Factors:.......................................................................................57

6.1.6 Legal Factors:......................................................................................................58

6.2 Porter’s FIVE FORCES ANALYSIS................................................................................58

6.2.1 Entry Barriers......................................................................................................58

6.2.2 Bargaining Power of Buyers...............................................................................58

6.2.3 Threat of Substitutes...........................................................................................58

6.2.4 Bargaining Power of Suppliers...........................................................................59

6.2.5 Competitive Rivalry within an industry..............................................................59

6.3 SWOT ANALYSIS............................................................................................................60

6.3.1 Strengths..............................................................................................................60

6.3.2 Weaknesses:........................................................................................................60

6.3.3 Opportunities:......................................................................................................60


6.3.4 Threats:................................................................................................................61

CHAPTER 7 FUTURISTIC SENARIO..................................................................................62

7.1 FUTURE GROWTH OF CONSTRUCTION EQUIPMENT INDUSTRY IN INDIA.....62

CHAPTER 8 CONCLUSION..................................................................................................64

ANNEXURES..........................................................................................................................65

BIBLIOGRAPHY....................................................................................................................67

List of Figures:Figure 1.1 India’s Construction Equipment Industry.................................................................2

Figure 1.2 Construction Equipments..........................................................................................5

Figure 1.3 Construction Equipments..........................................................................................6

Figure 2.1 Growth of theIndustry.............................................................................................11

Figure 2.2 Indian CE Industry Growth....................................................................................11

Figure 2.3TotalPlanned Road, Infrastructure,Real Estate, Irrigation Investments..................13

Figure 2.4 Steel Production and Consumption Figure 2.5 Index of production and GDP.....14

Figure 2.6 Sales Growth...........................................................................................................22

Figure 2.7 Exported Countries.................................................................................................23

Figure 2.8 Turnover wise Segment..........................................................................................24

Figure 2.9 Future Evolution.....................................................................................................25

Figure 3.1 Sales and Export Growth........................................................................................26

Figure 4.1 Co-Relation Between Status of Economy and the Industry...................................33

Figure 4.2Material and Information flow.................................................................................38

Figure 4.3Juran’s triple role and construction logistics process.............................................38

Figure4.4 CE Industry market Share........................................................................................43

Figure 5.1 Profit Margin..........................................................................................................45

Figure 5.2 ROA Ratio..............................................................................................................46

Figure 5.3 ROE Ratio...............................................................................................................47

Figure 5.4 ROCE......................................................................................................................48

Figure 5.5 EPS and DPS..........................................................................................................50

Figure 5.6 Total Debt Ratio.....................................................................................................50

Figure 5.7 Debt-Equity.............................................................................................................51

Figure 5.8 Interest Coverage Ratio..........................................................................................52

Figure 5.9 Cost Structure.........................................................................................................54

Figure 5.10 DuPont Chart........................................................................................................55

Figure 6.1 PESTEL analysis for construction equipment industry..........................................56

Figure 6.2 Porter’s five forces analysis....................................................................................58

Figure 6.3 Porter’s five forces analysis for construction equipment industry.........................59

Figure 8.1 Industry’s Future Evolution....................................................................................63

List of Tables

Table 5.1 Profit Margin and ITR Analysis...............................................................................46

Table 5.2 ROA Analysis..........................................................................................................47

Table 5.3 ROE Analysis...........................................................................................................48

Table 5.4 ROCE Analysis........................................................................................................49

Table 5.5 EPS and DPS Analysis.............................................................................................50

Table 5.6 Total Debt Ratio Analysis........................................................................................51

Table 5.7 Debt-Equity Analysis...............................................................................................52

Table 5.8 Interest Coverage Ratio Analysis.............................................................................53

Table 5.9 Cost Structure Analysis............................................................................................54

Table 5.9 Cost Structure...........................................................................................................55

Table 5.10 DuPont Analysis....................................................................................................56


CHAPTER 1INTRODUCTION

1.1 BIRTH OF INDIAN CONSTRUCTION EQUIPMENT INDUSTRYThe Evolution of Indian Construction Equipment (CE) Industry can be broken up in a time frame of five decade on bases of Industry trends, market and products.

Sr No

Year Industry Trend Market Products

1 1960-70’s

Domestic productionbegan with setting upof BEML

Government being themain producer andbuyer

Dozers, Dumpers,graders, scrapers,graders etc.

2 1980’s Private sector enteringthe sector with likes ofL&T, Telecom

Growth of market dueto increase inmining/infrastructureactivities

Hydraulicexcavators,mining equipmentetc

3 1990’s Joint Ventures withglobal player

Liberalization ofeconomy with increaseconstruction activities

Pavers, loaders,backhoe etc

4 2000’s Demand movingnorthward leading tocapacity doubling

Infrastructuredevelopment gainsmomentum withinvestments pouring

Equipments oflatest technologywith increase loadhandling capacity

5 Currentscenario& Future

Sectorial reforms andboost to infrastructuredevelopment

Increase in budgetaryallocation, increase ininternational financeinstitution funding forinfrastructure

Emerging as amanufacturing hubfor designing anddevelopingproducts for globalmarkets

G. H. Patel P. G. Institute of Business Management 1


1.2 INTRODUCTIONThe upswing in the Indian Economy has enhanced the demand for the Construction and Material Handling equipments. The demand for Construction and Material Handling Equipments is correlated with the growth of other segments like Infrastructure Construction, Ports, Pipelines, Roads, Steel, Power Projects, Mining, Building Construction etc. Increase in foreign investment (FDI/FII) and technology has led to a tremendous growth in requirement of mobile cranes and construction equipments. The size of Indian construction industry is over US$25 billion and it accounts for over 6.5% of GDP. With the GDP growth likely to be around 8% for 3 to 5 years going forward, the demand for construction equipments will continue to grow with core sectors like construction, cement, steel chemicals, petroleum, mining etc.

Figure 1.1 India’s Construction Equipment Industry

Construction equipment cover a variety of machinery such as hydraulic excavators, wheel loaders, backhoe loaders, bull dozers, dump trucks, tippers, graders, pavers, asphalt drum / wet mix plants, breakers, vibratory compactors, cranes, fork lifts, dozers, off-highway dumpers (20T to 170T), drills, scrapers, motor graders, rope shovels etc. They perform a variety of functions like preparation of ground, excavation, haulage of material, dumping/laying in specified manner, material handling, road construction etc. These equipment are required for both constructionand mining activity. With a wide production capacity base, India is perhaps the only developing country, which is totally self-reliant in such highly sophisticated equipment.



India has only a few, mainly medium and large companies in the organized sector who manufacture these. The technology barriers are high, especially with respect to mining equipment and therefore the role of SME’s is restricted to manufacture of components and some sub-assemblies.

Prior to the 1960s, domestic requirements of mining and construction equipment wereentirely met by imports. Domestic production began in 1964 with the setting up of Bharat Earthmovers Ltd. (BEML), a public sector unit of the Ministry of Defence, at Kolar in South India to manufacture dozers, dumpers, graders, scrapers, etc. for defence requirements under licence from LeTorneau Westinghouse, USA and Komatsu, Japan. In the private sector, the Hindustan Motors’ Earthmoving Equipment Division, was established in 1969 at Tiruvallur, near Chennai with technical collaboration from Terex, UK for manufacture of wheel loaders, dozers & dumpers. This factory has since been taken over by Caterpillar for their Indian operations. The machines manufactured by Caterpillar in the Tiruvallur factory are marketed by TIL and GMMCO. In 1974, L&T started manufacturing hydraulic excavators under license from Poclain,France. In 1980 and 1981, two more units, Telcon and Escorts JCB commenced manufacture of hydraulic excavators (under license from Hitachi, Japan) and backhoe loaders (under license from JCB, UK) respectively. Escorts JCB has been taken over by JC Bamford Excavators Ltd. U.K. in 2003 and is now called JCB India Ltd. In 1970s Escorts Limited started manufacturing Cranes in collaboration with Faun AG and Rapier & Ransome. Volvo and Terex Vectra are the most recent entrants in the Indian market.

The Indian mining and construction equipment industry has evolved primarily on the basis of domestic demand generated over the various plan periods, essentially on the basis of investments which have gone into mining, infrastructure development and the building and construction sector. Today it is still focused largely on the domestic market and exports are marginal at a level of around Rs.300 crores for an industry approaching a market size of Rs.7,000 crores.

The opening up of import competition has led to tightening up in operational efficiencies across the entire sector. The larger companies who are market leaders and who have overseas tie-ups have been the first in their respective product groups to start benchmarking with global efficiency levels. The survey results have revealed that in many respects they are still far behind global benchmarking norms. However, the customers in the mining and construction sectors are increasingly becoming conscious of quality, productivity and down time and demanding better performance from Indian suppliers who have been complying with the expectations of the market due to the threat of import competition. This process is expected to accelerate. The survey results have identified some of the areas where operational efficiencies are required to improve. Indian companies need to become more mindful of this.The industry is expecting a process of consolidation to take place. This is expected to pick up with the entry of the remaining global majors who are yet to set up bases in India. Expectedly, the route for consolidation will be through mergers and acquisitions where the



smaller units who are unable to stand the process of competition will ultimately sell up to the larger players in the market.While the Indian companies will certainly base their business decisions on the basis of expectation of demand in the Indian market, the industry’s perspective on the export market is required to undergo a transformation in order to provide long-term buoyancy in terms of demand for their Indian operations which may not necessarily be entirely dependent on the investment cycle in infrastructure and mining in the Indian economy. The report has also tried to outline the fact that very significant investments are being made in capital expenditure by the global mining majors and countries like Australia, China and Chile are embarking on huge capital investments to develop mines and enhance expectations seen in conjunction with the expected investment inconstruction, this augurs well for the equipment producing industry the world over. In such a scenario, India can emerge as a lower cost sourcing hub for equipment. To some extent this trend is already in evidence, for example Caterpillar Inc. is producing some equipment for the South East Asian market in India. It is expected that this trend will only enhance and gain further momentum. In the circumstances, it is all the more important for Indian companies to pay attention to achieving global levels of efficiency and productivity in order to meet the challenges of the external market. There are certain advantages which Indian companies have in terms of lower cost for labour and design engineering. This can be leveraged to provide cost efficiencies and support strategies aimed at selling comparable equipment at lower prices. Hence productivity will have to improve significantly.

A manufacturer’s competitiveness in today’s terms is not limited to products but extends to customer support. Capital goods are expected to meet the needs of customers more so construction and mining equipment whose productivity and performance is directly linked to the customers’ profitability. The availability of sophisticated equipment results in higher quality work, shorter turnaround time, less delays due to lower downtime and maintenance and hence less cost overruns. Here it is very important for manufacturers to produce machines which meet the expectations of customers be it improving operating efficiencies, or reducing costs of deployed machines. In this respect Indian companies need to further improve their after-sales service through better customer relationship management, training and product support. However, it is important to note that the demand for greater mechanization and productivity will largely come from the large-scale mining operations. There are a large number of small mines in India which will continue with lower levels of mechanization.

Companies need to increase their spending on training and focus on human resources development to attain a highly motivated, knowledgeable and trained sales and service force to offer better customized solutions. Companies need to enhance their spending on R&D to develop new innovative product and ways and means to improve their products in terms of power to load ratio, SHE policies, reducing operating costs and usage of better materials. The domestic industry suffers due to poor aesthetics of finished products since research on material engineering is not upto international standards due to high investments required.



World leaders are constantly researching and coming out with new models with the latest features at regular intervals and this can be achieved by Indian companies by allocating higher amounts for R&D since the testing equipment required for R&D labs are very expensive.Companies also need to invest more into their R&D to produce equipment without the help of foreign technology otherwise they will be restricted in their global market access.Quality is another aspect, which affects the productivity and life of a machine. Though the quality consciousness of the industry is fairly high as compared to other sectors,the industry needs to educate and encourage its sub-suppliers to attain higher quality standards. The industry should procure components from ISO certified companies thereby forcing more and more sub-suppliers to be ISO compliant.

To increase the inventory turnover, companies need to focus on their supply chain management.The industry needs to invest a substantial amount into IT for ERP or SCM to further reduce their working capital requirement by better inventory management and debtor management to achieve better return on the capital employed. This will also ensure better customer servicing by catering to demand faster. Companies need to relook at their business processes to reduce cost to offset the increasing raw material prices. Since a substantial amount of bought-outs are imported, the industry needs Government support for better infrastructural facilities for importing and easier procedures, which will reduce the turnaround time and allow the companies to carry low inventory levels.

1.2.1 The Industry spans a range of products and services

Figure 1.2 Construction Equipments

• Products and spare parts constitute the bulk of the industry

• Services segment is still nascent and presents good opportunities for growth



• The unorganised sector contributes about 15% by value, though the majority of players belong here1.2.2 The key segments that constitute the Construction Equipment industries in India are

Source: http://bhi.nic.in/mining_construction_equipment .pdf

Figure 1.3 Construction Equipments

Concrete Equipment

Material handling Equipment

Material Preparation

Road Construction Equipment

Construction Vehicles

Tunnelling & Drilling Equipment

• Concrete Breaker•Paver Finisher•Concrete Batching Plants•Concrete Pumps•Concrete Mixers• Hot mix plants

• TelescopicHandlers•Crawler Cranes•Mobile Cranes•Truck Cranes• Forklifts•Pick & CarryCranes•Slew Cranes•Tower Cranes• Conveyors

• CrushingPlants• JawCrushers

•CompactionEquip• VibratoryRollers• Pavers

•Dumper•ArticulatedHaulers

•Rotary/ DTH Drilling•Hammer Track Drill•Boring Equipment•Demolition Equipment


http://bhi.nic.in/mining_construction_equipment%20.pdf


The major players in this segment who are also members of the Indian Earthmoving and Construction Industry Association Ltd. (IECIAL) are as follows :Ashok Leyland Ltd.Bharat Earth Movers Ltd.Caterpillar Commercial Pvt. Ltd.Escorts Construction Equipment Ltd.GMMCO Ltd.Greaves Cotton Ltd.Ingersoll Rand India Ltd.JCB India Ltd.L&T Komatsu Ltd.Larsen & Toubro Ltd. (Construction Equipment Division)Mahindra & Mahindra Ltd.Schwing Stetter India Pvt. Ltd.Tatra Trucks India Ltd.Telco Construction Equipment Co. Ltd.TIL LtdVoltas Ltd.Volvo India Pvt. Ltd.Wirtgen India Pvt. Ltd.

The other prominent players in the segment are :Apollo EarthmoversApollo Industrial ProductsBraithwaite & Co. Ltd.Elecon Engineering Co. Ltd.Godrej & Boyce Mfg. Co. Ltd.Gujarat Apollo Equipment Ltd.Heavy Engineering Corporation Ltd.Hyderabad Industries Ltd.International Combustion (India) Ltd.Jessop & Co. Ltd.Macneil EngineeringMukand Ltd.Shethia Erection & Material HandlersTRF Ltd.WMI Crane

1.3 OBJECTIVES To study the scope, importance and significance of Construction Equipment Industry

in detail. To understand the growth, evolution and demand scenario for Construction

Equipment Industry. To understand the marketing scenario and evaluate the financial performance of the

whole industry in detail and its future potential in the market.



1.4 SCOPE

There is a huge scope for the construction equipment market in India given the country’s increasing focus on a number of key infrastructure projects. Indian Earthmoving and construction Equipment Industry (ECE), is at a water shed in its evolution and all set to experience strong growth, spurred by the nation’s rapid economic development. It has the potential of approximately US$ 12-13 billion by 2015, growing at 30 per cent CAGR. This is in tune with global demand for construction machinery, which is for cast to climb six per cent per year to $130 billion in 2011.

Product sales will be fuelled by healthy economic growth, ongoing industrialization efforts, rising population and higher standers of living in developing parts of the world, leading to substantial increase in construction spending. China, India, Mexico and Russia will register some of the largest sale increments, with China alone accounting for 31 per cent of all additional construction machinery demand through 2011. Growth is also expected to be strong in lower volume markets such as Iran, Malaysia, Indonesia, Ukraine, Turkey, Poland and South Africa. However, the Indian construction equipment industry has evolved primarily on the basis of domestic demand generated over various plan periods, essentially on the basis of investments which have gone into mining, infrastructure development and the building and construction sector.

Vipin Sondhi,MD & CEO, JCB India Ltd, on the occasion of celebrating manufacturing and selling 100,000 machines in India, ”JCB”s over 750 crore investments in its Pune and Ballabgarh plants position us very well to take advantage of the ever growing demand for construction equipment in India. JCB today is the market leader in construction equipment sector in India with over 50 per cent market share. The Company is also gaining strength in the Tracked Excavator, Compaction, equipment and wheeled Loading, Shovel segment across India.” Even Volvo India is eyeing 0 per cent share of the construction market equipment in India by the end of 2010 and aims to clock revenue of Rs. 240 core in this segment. According to reports, Mritunjaya Singh, Managing Director, Volvo India was quoted as saying that “The construction equipment market in India is expected to reach Rs. 2500 crore by the end 2010 and we are aiming to capture 10 per cent of this market . There is a huge scope for the construction equipment market in India given in the country’s increasing focus on sectors like mining and infrastructure.

With the industry booming, a lot of new areas are emerging, which present good growth potential for the future. For instance, the rental segment is expected to grow about 25 per cent by 2010. Currently, equipment rentals contribute to jet over 2 per cent of the market. The leasing segment is equally promising as it is estimated to grow by 8 per cent in 2010 from present 2 per cent. Export is another promising section where a number of players are betting big. Exports of Construction Equipment (CE) from India grew by 30 per cent CAGR over 2001-05 and are expected to sustain this growth in the future.



1.5 METHODOLOGYOur study is broadly based on the secondary data which would include collecting data mainly from Internet. Some of the other sources are CMIE reports (for financial data), magazines, and publications journals.

1.6 IMPORTANCE1.6.1 It Is Valuable To Mining Industry

With the development of the mining industry in recent years, the need for mining construction equipments have risen up too. It is a known fact that the mining industry is one of the most dangerous working environments, but mining companies earn well. Annually, the industry is continually growing and expanding every year.

Mining construction equipments are very valuable to the mining industry. They are commonly utilized in extracting minerals from the earth's surface. Some fifty years ago, miners simply depended on hand held tools to get minerals and metals. When mechanical equipments came out, the industry enjoyed the benefits of many types of mining construction equipments. This is also one of the reasons why the industry has grown. There are numerous mining techniques implemented now as compared to before.

1.6.2 It Is Dangerous Mining is truly dangerous. There has been numerous reports and news about the mining workers dying inside mines because of mining activities. Heavy machinery is really needed for mining. If wrong equipment is used, it might lead to a tragedy. It is vital for people operating the mining construction equipment to use it safely and properly.

1.6.3 Performance and Durability It is very apparent that the trend is moving towards more and more mechanization. As the competition becomes tougher, the demand for mechanization that is effective, safe, efficient and low cost will also go up. A lot of features and factors need to be considered when buying the right mining construction equipment for a mining firm.

The two most important considerations when choosing the right equipment would be its performance and durability. Cost is also considered now as another important consideration when deciding on which the best mining construction equipment would be. Efficiency highly prized by mining companies, and new innovations are helping out with that. Companies that sell mining construction equipments are getting keen on competition.



1.6.4 Standard Mediums The future of mining construction equipment is as good as any product being promoted today. To be successful, most businesses use all the standard mediums. As long as they are cost effective but quality is not compromised, procurement of mining construction equipment will continue to soar.



CHAPTER 2GROWTH AND EVOLUTION

2.1 GROWTH OF THE INDUSTRY

Figure 2.1 Growth of theIndustry

The Indian construction equipment has been growing at a scorching pace of more than 30 percent per annum

The demand for construction equipments correlated with ports, pipelines, roads, steels, power projects, mining and building etc which attract an investment of more than 500 billion in next few years.

Equipment cost as a part of construction cost ranges from 4.5 percent to 24 percent.

2.1.1 Growth in the industry is expected to be driven by 3 key drivers:

Source: http://bhi.nic.in/mining_construction_equipment .pdf Figure 2.2 Indian CE Industry Growth




Growth in the Indian Construction Equipment industry is driven by three factors. They are:

INFRASTRUCTURE INVESTMENTS

Investment in roads, ports, power, etc. Housing and estate construction

EMERGING GROWTH RATES

Rentals Exports Refurbishing used equipments Services

INDUSTRIAL PRODUCTION

New facilities Upgradation of existing facilities



2.1.2 Present InvestmentSignificant investments are planned in developing India’s infrastructure, which will benefit the Construction Equipment industry:

Figure 2.3TotalPlanned Road, Infrastructure,Real Estate, Irrigation Investments



2.1.3 ProductionIndustrial production has been growing and significant capacity additions are planned in core sectors:

Figure 2.4 Steel Production and Consumption Figure 2.5 Index of production and GDP



2.2 PRODUCT PROFILE:



2.2.1 BACKHOE: Facts & Figures

A backhoe is a machine designed for excavation. It consists of a scoop or digging bucket on an articulated arm (also known as a stick or dipper); this assembly is typically mounted on the back of a tractor or front loader, enabling the operator to do many different jobs without switching to another piece of heavy equipment. However, the backhoe is not so called because of its rear-mounted scoop; rather, it is called a backhoe because of the way it draws earth back towards itself, rather than pushing it like a bulldozer.

The backhoe arm may also be used to connect to other attachments than a scoop, using an integrated toolcarrier (IT). Such attachments include augurs for drilling, hydraulic hammers for breaking up asphalt, asphalt grinders for milling road, grapples for pulling up roots and stumps, and compactors for compressing loose road material such as gravel. All of these attachments, its compact size, and its manoeuverability on wheels make the backhoe an extremely versatile and popular piece of heavy equipment machinery.

The digging bucket of a backhoe is much narrower than the bucket on the front loader, but is able, because of its articulated arm, to dig much deeper than the front bucket. Its narrow dimensions enable it to dig trenches quickly and effectively for laying pipe or cable, and preparing areas for concrete foundations, and drainage.

The first tractor equipped with a front loader and backhoe was developed in Britain by JCB in 1953. So dominant was JCB in their market that the British still refer to the machines as "JCBs"; the term backhoe is virtually unknown there.

Major manufacturers of backhoes include: Ammann-Yanmar, Case, Caterpillar, Deere & Co., Ford Motor Company, Hitachi, JCB, Komatsu, KPX, Massey Ferguson, Takeuchi, Terex, Terramite, Volvo, and John Allen.

2.2.2 CRANE: Facts & Figures



The crane is a construction devise comprised of an arm, a winch, and a wire rope to create mechanical advantage and lift heavy objects. The arm may be hydraulically controlled and connected to a pivot point, or may consist of a vertical mast and a horizontal boom. Many different types of cranes exist, each tailored for a specific purpose, but they all work on the same general principles, particularly leverage.

Cranes may be thought of as the oldest of heavy-equipment machines, having been invented by the Ancient Greeks for the building of temples. Those cranes, right up until the Industrial Revolution, utilized human or animal power to turn the winch or move the crane, though sometimes they could be connected to a water or wind mill. The first mechanically powered cranes utilized steam engines in the late 18th or early 19th Centuries. Modern cranes are powered by either electric or internal combustion engines, and use hydraulics to create even more lifting power.

There are many types of cranes. The one seen most obviously along the skyline is the tower crane, which has a fixed base and is constructed on site and dismantled once a project is complete. These cranes employ a counter balance on the short end of the boom, while the long end does the lifting. Because of their height and their slender base, they must be engineered to withstand forces that would cause them to tip, and are often braced by the very structure they are building. Truck mounted mobile cranes , known as boom trucks, generally employ a telescopic crane mechanism, allowing them to minimize their size for travel to and from job sites. Floating cranes are constructed upon pontoons, and are used mainly in the construction of bridges and ports, though they are sometimes also used to move awkward loads off of ships, and in salvage operations. Some floating cranes have lift capacities of 10,000 tonnes.

Large construction companies may have several cranes among their heavy equipment. For companies which are not regularly using cranes on their projects, many industrial equipment rental stores exist.

2.2.3 WHEEL LOADER:



The wheel loader, sometimes referred to as a front end loader, a bucket loader, or a scoop loader, is a modified tractor with a wide, tilting bucket on hydraulic moveable arms. Loaders may also be fitted with a Its primary use is for lifting material such as wood, earth, gravel, or debris, and loading it into trucks for removal or releasing it in a pile elsewhere. They may also be used for short transport of heavy materials such as piping or bricks across a construction site.

Though loaders with rotary tracks are common, especially when working with sharp debris that could damage rubber tires, the wheeled loader is preferable for most urban engineering projects because it does not damage roads and moves more quickly from place to place.

While some wheel loaders have permanently mounted buckets, most are removable, allowing for a host of other attachments. Such attachments include forks for loading pallets or shipping containers, plows for snow removal, bale grapplers for gathering and lifting large bales of hay or straw, or hesavy duty grapples for loading logs. It may also be fitted with a "clamshell" bucket for scraping or light dozing.

Larger wheel loaders are designed with articulated steering; the front and rear axles of the machine are connected by a vertical hinge and hydraulic cylinders. This means that the rear wheels do the turning while the front remain fixed, allowing for heavier loads on the front end. Placed at halfway between the front and rear axles, the vertical hinge also eliminates the need for a differential.

2.2.4 MOTOR GRADER:



A motor grader, sometimes called a blade or simply a "grader", is a heavy equipment engineering vehicle used to create a finish grade for roads, airstrips, or other large, flat surfaces such as soil foundation pads for building construction. They prepare and maintain gravel roads, which can degrade into a "washboard" after rains. In paving construction, they prepare the base course for asphalt. In colder climates they may be used for snow removal, while in grasslands they may be used for creating dirt tracks where the absence of trees means there is no need of a bulldozer. In some countries they may also be used to create shallow v-shaped ditches along roadways.

Typical models have three axles. The engine and cab rest over the section between the rear two axles, while the blade for grading is suspended from the section between the hinge in front of the middle wheels and the front wheels. Steering is accomplished by the movement of the front wheels on the turning of the hinge.

Early graders were known as "pull-type" graders, horse-drawn modified carriages with a small gasoline-powered motor to drive the conveyor. Invented in 1903 by two entrepreneurs, the Russell grader was eventually pulled by a tractor. In 1928, Caterpillar, whose engines were already being used on Russell graders, bought Russell Grader Manufacturing, and in the 1930s new grader lines were developed, the forerunners of today's modern motor graders.

Major manufacturers of motor graders now also include Case, Grove, Hitachi, Ingersoll-Rand, Komatsu, New Holland, Veekmas-Oy, and Volvo.

Blade sizes range from 2.5 to 7.3 meters, and engine sizes from 125 to 500 horsepower. Some companies may choose to lease or rent motor graders, depending on the size or duration of the project.

2.2.5 FORKLIFT:

The forklift is a powered truck fitted with steel forks on its front end, used to lift and transport material. The two parallel steel forks slide beneath the material, often loaded onto a



wooden pallet or skid, and then hoisted. Most are fitted with small wheels and are really only practical on finished or paved surfaces. Some forklifts carry their cargo on one side of the vehicle; these are called sideloaders. Though small by comparison to most heavy equipment vehicles, it has become indispensible for the warehousing and manufacturing sectors. Major manufacturers of forklifts (by market share) include Toyota, KION Group, Jungheinrich, NAACO Industries, Inc. (which includes Yale and Hyster brands), Komatsu, Manitou, Mitsubishi, Nissan, Caterpillar, Clark, and Crown Equipment, though many more brands are available among used forklifts. (Over the years, many other brands such as Allis-Chalmers have either gone out of business or been assumed into larger companies through acquisitions.)

Forklifts are organized by class. Forklifts range in size and capability from small, hand powered pallet jacks, designed only to give ground clearance and move the pallet from one area of floor, all the way to diesel-powered driver-operated models of enormous size, used for moving raw logs and capable of loads up to 50 tonnes. Most common are those in the middle, either electric-rechargeable or propane-powered models approximately 6-10 feet (2-3 meters) in length, with forks on a sliding hydraulic mast of cylinders or rails, and capable of loads between one and five tonnes.

Forklift operators must be well trained to operate the machine safely and effectively. Because most models steer from the rear, manouevering quickly can take some getting used to. Additionally, moving with a load held high upon the forks can upset the forklift's low center of gravity, and risk tipping. To keep the forklift balanced, some machines have a counterweight at the back, though in most cases it is the actual engine or battery that acts as the rear weight. Most forklifts have an overhead guard above the cab to protect the operator from falling debris. The exception would be those motorized pallet jacks upon which the operator stands.

2.2.6 BULLDOZER:

The bulldozer, so called because of its pushing power, is a track-wheeled, driver-operated heavy equipment machine fitted with a broad flat blade. Its main purposes are for pushing large, heavy objects or piles, and for flattening and grading. Properly speaking, a bulldozer whose blade has been replaced with a hydraulic scoop is a tracked loader, not a bulldozer.



The origin of the name "bulldozer" is uncertain, but it is interesting to note that in the 1880s a "bull-dose" was a large amount of medicine suitable for a bull, and a "bulldozer" was a large calibre pistol and the person who wielded it (ie., someone who intimidates others).

Bulldozers were developed by the Holt company (today known as Caterpillar) from tractors used to plough fields. The tires were replaced with a rotary track system, allowing these vehicles to move effectively over soft and muddy ground. A military application was also recognized, and the first armoured tanks with rotary tracks rolled across Europe toward the end of World War I. Today, bulldozers themselves may be armoured for construction in a military environment, as they are in Israel.

The blade of a bulldozer comes in three main varieties: the Straight blade, a short blade with no lateral curve or sidewings, used for fine grading; the Universal blade, a tall curved blade with sidewings used for gathering and moving more material; and a combination blade, called the "S-U" blade, which is less curved and has smaller sidewings, and is used for pushing boulders and rock piles. Bulldozers may also be fitted with either a single- or multi-shank ripper on the back, useful for breaking up hard surfaces either into rubble for removal or ploughable land.

While demolition companies or companies specializing in road construction may find it practical to purchase bulldozers for regular use, smaller companies or those with more diversified services may find it more practical to rent or lease their heavy equipment, depending on the project size.

2.3 INNOVATION POTENTIAL:2.3.1 Outsourcing opportunity

The vast talent pool gives India a comparative advantage, with high quality of engineering, software and IT talent. Many global players source engineering services, including design and testing from India. It is estimated that a companies R&D spend is of 4-5% of the turnover with company of $1 billion and over turnover. There is a huge opportunity, which Indian ConstructionEquipment (CE) players can explore. Indian players like Telco Construction Equipment Co (TELCO) and L&T have already made an entry into product designing, with their e-Engineering solutions. L&T’s e- Engineering, focuses on providing services in CAD in different verticals, such as construction equipment, industrial products, automotive, aerospace and ship designs.

2.3.2 Rentals

• Currently, equipment rentals contribute to just about 2% of the market

• This is expected to grow to about 25% by 2010



Rentals offer multiple benefits to the end user, it is preferred model globally. Havingequipments on rentals have few benefits such as:a) Avoid large capital expenditureb) Saves on maintenance and storage cost and offers access to broad selection ofequipments.c) It allows best equipment for the job and tests it before take a decision to buy.

New machines drive the rental market. Rental companies sell off used machines, as soon as they get the price to recover their investments. This keeps the fleet young, ensuring higher uptime and lower requirement of parts. It also adds to productivity. Penetration of rentals in the Infrastructure Equipment Industry in India, has been low. In the case of cranes, rental penetration is estimated to be higher (around 60%); but overall, it was 2% in 2004.

Renting has a strong potential in India, particularly for smaller equipment. It is alreadybecoming the preferred option for small and medium sized contracting firms. Penetrationof rentals could go up to 20-25% by 2010. A 20% penetration in a USD 4.25 bn industrywould put the rental market at USD 800mn plus by 2010.

2.3.3 Leasing

• Equipment leasing expected to grow from about 2% to around 8% by 2012.

2.3.4 Financing and end-to-end services

• Some of the large players are looking at providing end-to-end services to the users throughout the equipment lifecycle – financing, user training, maintenance and buy-back of used equipment

2.3.5 Exports

• Exports of Construction Equipment (CE) from India grew by 30% CAGR over 2001-05 and are expected to sustain this growth in the future

2.4 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)

2.5 SALES GROWTH

Source: http://bhi.nic.in/mining_construction_equipment .pdfFigure 2.6 Sales Growth

While the global economic growth is expected to slow slightly compared to last year,

indicators suggest that the global markets for equipment will continue to experience solid

growth. The year will benefit from improved price realization, increased volume,

manufacturing efficiencies and an intensified focus on cost structure by all companies.

Material cost pressures will continue for the first half of 2005, with some relief expected in

the last six months with the stabilization of steel prices. As a result, the latter half of 2005-06




will be stronger. It is also evident that the percentage growth in exports from India to various

world markets has shown an increasing trend.

However, most of the companies who have technological tie-ups with world leaders

are constrained in their agreements to export beyond the SAARC countries. Only companies

who have developed innovative products over the years and are manufacturing equipment

based on their own innovation and R&D are exporting worldwide. Out of the companies

surveyed, only 75% of them exported their products to either other customers, or to their own

parent company.

The following is a graphical representation of the percentage of companies exporting to the

various countries. Some of the companies are exporting equipment back to the parent

company.

Source: http://bhi.nic.in/mining_construction_equipment .pdfFigure 2.7 Exported Countries

The export opportunities have increased in countries like Iraq and Afghanistan which are

trying to rebuild themselves. A number of other countries in the Gulf are also investing in

infrastructure while countries like South Africa are investing in mining. Indian companies

have made forays into these regions with success. However export to sales is very low at 5%

of its sales.




STRUCTURE OF INDUSTRY

Source: http://bhi.nic.in/mining_construction_equipment .pdfFigure 2.8 Turnover wise Segment

71% of the sector comprises of public limited companies including PSU’s and 29%

private limited, or joint ventures including closely held private limited companies. 75% of the

companies manufacturing in India were involved in the entire range of activities like design

and engineering, manufacturing, erection, servicing and commissioning. There are only a few

companies who act as selling agents for international players. There are others who

manufacture and also import complete equipment or in SKD condition from their principals

abroad and market them. Since each piece of the equipment in this product category has

substantial value, a number of companies have a turnover of over 100 crores and the larger

ones have a turnover above Rs.1000 crores. The technology barriers have made the industry

less fragmented in the mining machinery sector whereas it is fragmented in the road

construction equipment and the material-handling segments. The international trend in the

earthmoving and mining segment is one of consolidation. This trend is also beginning to be

seen in India. Some international companies are looking at the prospects of enhancing their

market presence based on higher investment in mining and infrastructure and also using their

Indian operations to meet demand in South and South East Asia.



Source: http://bhi.nic.in/mining_construction_equipment .pdfFigure 2.9 Future Evolution

The industry’s expectations of the likely future evolution in this sector is represented

here in graphical form. Most of the current players expect that new players will enter

the Indian market.




CHAPTER 3DEMAND DETERMINATION

3.1 MARKET SITUATION AND DEMAND

The sector has seen a double-digit growth in its sales turnover for the past two years with a phenomenal 33 percent growth in the previous year. The growth was seen more in the mining equipment segment. There was comparatively lesser growth seen in the construction and road making machinery. This may be viewed in the context of the tapering off in demand under the national highway development programme from the end of 2003.

The order backlog for the industry is Rs.3,400 crores as on 31st March 2005 which is more than 50 percent of the projected sales of the industry for 2005-06. The domestic demand in 2004-05 was Rs.6,300 crores and it is estimated that the demand in 2005-06 will be in excess of Rs.7,000 crores. Exports were to the tune of Rs.280 crores in 2003-04 and Rs.330 crores in 2004-05.

Source: http://bhi.nic.in/mining_construction_equipment .pdf Figure 3.1 Sales and Export Growth

The industry is presently focused on meeting domestic requirements and is also striving to be competitive in the world market.

Demand for a particular product/good/service depends upon various factors. These factors are called as demand determination factors. These factors affect the demand of the product either positively or negatively. As we know that Construction equipments are industrial products so they are different then FMCG products, hence all the demand determination factors which majorly affect the demand of FMCG products will not have the same effect here. The demand determination factors which affect the construction equipment industry are discussed below.



3.2 PRICE OF THE PRODUCTS

A product is a combination of various inputs i.e. factors of production in variable proportion. After processing all these materials and carrying out different activities we get a final product. The final price of this product is combination and contribution of all these activities and materials.

In a competitive market every organization has to price its product at a fair price. The pricing of a product affects its demand. However this effect would be different for different industries. For example, for consumer goods industry low pricing of the product affects the demand tremendously and the immediate competitors also have to decrease the price of the products to attract customers.

However for construction equipment industry, the pricing of the product is not a major factor that would affect the demand of the product. The construction equipments mostly used in manufacturing process industry are a necessity for many process industries. The bargaining power of the customers is very less in this kind of industry as far as pricing is concerned. Their only major requirement would be the specifications and quality of the equipment as even small variations can create problems in their process and thereby the end products. Hence they are very particular about the quality and not the price.

3.3 INCOME OF THE CUSTOMER

Income of any person is important in determining his purchasing power. The savings and the expenses of any person would depend on his income. However there are certain products whose demand are not affected by the income of the customer. For example when we consider the necessity products like salt, it is a commodity that is needed in daily use; hence everybody is going to buy it even if their income is too low. Whereas demand of some products like white goods depend a lot on the income of customers. Only those with high income can afford to buy such products.

For Construction Equipment Industry the income of the customer is not a major factor in determining the demand of the equipments. These products are used extensively in manufacturing industry, production industry. Hence when the owners of such companies decide that they might need Construction equipment, their income does not affect their decision to buy or not. This is because there is no immediate alternative to the use of Construction Equipments.



3.4 PENETRATION LEVELPenetration level of any particular company in an industry shows how much market it has captured and how well it has captured. Penetration can also be with respect to certain segments of the market. If the penetration level of any company is high in market, it indicates that the market share of that company is high as compared to its competitors; also that the customers are satisfied with what products the company is providing them.

The penetration level therefore plays an important part in determining the demand of the Construction Equipments. The variables that would determine the penetration level will be the technology used by various companies in the industry, location of the company, the expertise of the company that it has achieved through the experience. All these would determine the market share of each company and therefore the demand that it might face.

3.5 AVAILABILITY OF FINANCE Industrial products are generally very expensive. Their price depends upon the capacity and specification of the products or equipments. Thus availability of finance affects the demand of product.

Construction equipments are meant for specific usage and are manufactured on demand with specific capacity. Hence they are very expensive. Their price ranges from lakhs to crores of rupees. Therefore if a company has weak financial position then it might be difficult for it to go for buying of such equipments.

In certain cases loan might be available for purchasing these equipments. Also due to financial constraint the buyers of such equipment may switch over to low quality cheaper options available. However this may prove hazardous on long run. The regular buyers of such products may bargain with the suppliers for better modes of payment and good credit terms.

Thus we can say that though these equipments cost a huge sum; the buyers do arrange for some means or the other for the funds needed. A negotiation between the supplier and buyer can result in to better and beneficial terms financially. The suppliers can thus avoid ‘funds problem’ affecting their demand.

3.6 REPLACEMENT DEMAND

Any product has its own life span. After this it can either be replaced or completely removed and a new one has to be bought. This life span plays an important role in estimating the demand of any product. If a product is a necessity product and having less life span it will generate regular demand. Certain products might be seasonally required and so generate demand in certain period of time.

In case of Construction equipments, such products are one time buy. Their life span is normally 10 – 15 years depending upon the usage i.e. it depends for what kind of mechanical



processes such equipments are used. Only in case of accidents or defects at the time of manufacturing they might be needed to replace.

3.7 EXCISE DUTY STRUCTUREExcise duty mainly is charged when the goods leave the company premises. Various states have their own sales tax. Moreover there is a central sales tax that is also being charged according to the products.

As excise duty increases the price of the product will also increase and this will affect the demand. There are several manufacturers of Construction equipments in India and their demand comes from all over the country. Hence the equipments have to be transported from the company to the buyers place. Sales tax of the state through which it passes during its transportation is charged to the buyer or to the manufacturer whosoever is responsible for the shipment. The larger the distance the more would be the total excise duty

3.8 TECHNOLOGY

The construction equipment sector has a wide range of products. The worldwide technology leaders in the construction equipment sector are: Komatsu, Caterpillar, Hitachi, Terex, Volvo, Scania, Case, Ingersoll-Rand, HAMM, Bomag, John Deere, JCB, Poclain, Bitelli, Hyundai, Kobelco and Daewoo. Almost all the companies have presence in India either as joint ventures, or have set up their own manufacturing facilities, or marketing companies. In the mining sector, the leaders are: Hitachi, Komatsu, Wrigten, Atlas Copco, Liebherr, Joy Mining Machinery, Terex, Bucyrus Erie and DBT. Out of these companies, DBT and Joy Mining Machinery are present only through their marketing network and provide sales support.

In the construction equipment sector, the level of technology prevalent internationallycan be made available in India through joint ventures. However, the equipment currently being manufactured in India is not of the same size. For example for a 15Cu.M. hydraulic shovel, the manufacturers do not feel the need to bring in the technology due to low volumes and uncertain demand though the companies have the manufacturing facilities and design capabilities to manufacture the same in India.

Some of the other reasons for not manufacturing the latest equipment are :• The Indian market cannot absorb the cost of the latest technology• If manufactured in India for export markets, most of the components will have to be imported• Equipment adhering to the latest emission norms cannot be used since the quality of fuel required for them is yet to be made available here. At the same time, off highway construction and mining equipment do not need stringent emission norms in India.

The construction equipment sector in India has evolved over the years and is at present in an intermediate stage of development. The industry is trying to bring in international levels of technology as demand and the scale of operation increases. In India both premium, latest



state-of-the-art technology equipment and value for money low cost products exist simultaneously. The high technology state-of-the-art products can be manufactured in economical quantity only if the users are compelled to use them due to environmental and ecological reasons. The reasons for latest technology equipment not finding favor with the users lie in the fact that these are verycostly because maximum percentage of components are imported and with the rupee depreciation, the cost of these components have been going up and hence the equipment are not affordable as the cost of projects go up. Further reason for India taking a longer period for evolving towards state-of-the-art equipment is partially due to socio economic factors.Though it has been observed that the user sector with the growing FDI are likely to bemore geared towards the state-of-the-art technology machines which are mor eproductive, low in maintenance cost and provide comfort for operators. These ranges would reign supreme among the private players. The users are now not looking at only the initial cost of the equipment, but focusing on total costing, or cost per ton of usage. It is anticipated that 5 years hence, the need for more and more mechanization and enhancement of scale may lead to change in the level of technology in use. However, it is a fact that Indian companies would have to move towards the state of the art technology, but the manufacturers would also try to keep a balance between the state of the art and user friendly machines as well as try to provide the relevant technology levels which provides value for money to the customers.



CHAPTER: 4MARKETING STRATEGIES ANALYSIS

Market Definition

The construction and engineering industry is composed of civil engineering companies and large-scale contractors, but excludes companies involved in home-building. The market value is calculated as the revenues of those companies whose primary activity is the construction of non-residential buildings and non-buildings construction (civil engineering).

4.1 MARKETING STRATEGIES

Whether in the remodeling business or new construction, you always run into plenty of competition for construction work. Marketing ensures that you have plenty of work, even when construction jobs are scarce. Use a variety of marketing efforts. This gets your name out much more quickly to a larger audience.

Construction Equipment marketing process can be divided into 4 quadrants. They are as follows:

1. Face-to-face marketing – or, the “people” quadrant.2. Direct Response marketing.3. Media and traditional advertising.4. Web based marketing.

4.1.1Prioritize Customers

In the construction business, it takes only a few good customers to make up the substantial part of your income. Define who your best customers are and stage your advertising around them. Narrowing your prospects ensures that your marketing dollars do not go to waste.

4.1.2 Localize Marketing

When you are on-site in a lived-in neighborhood, there are potential customers all around. Place a sign on the corner with your name and tag line. Distribute door hangers that tell a little more about your services. You can even ring doorbells while placing door hangers to present a more personal message.

4.1.3 Create a Website

You need an online presence. Your website should have contact information and a digital resume. Feature your best work and let your potential customers know what your benefits are. Include customer testimonials and your own credentials. Include pricing and information on the costs of building and remodeling.


http://www.ehow.com/careers/

http://www.ehow.com/business/


4.1.3 Become an Expert

If you have worked in construction very long, you are sure to have a few tips and tricks in your pocket. Offer a newsletter with advice and information. A weekly or monthly email newsletter doesn't cost much and keeps you on your customers' minds. Write blogs and articles for placement online with your name and website listed in the "About the Author" section. You may need to hire a writer; to keep costs low, hire a local college student at a lower price than a professional.

4.1.4 Reward Referrals

Referrals are one of the best ways to gain customers. Offer your current customers a gift card or cash when they bring you business. When your business is strong and your customer service is excellent, the referrals will not be hard to come by. Print business cards to make referrals easy for your customers. Simply hand out extras and ask customers to give them out when referring your business to others.

4.1.5 Sell Your Specialty

Your company provides a service in a way that others do not. You may work special hours that accommodate customers better. You may have a large crew and finish jobs in amazingly short periods. Or you may do specialty work that is not offered in your area. However you are unique, advertise that quality by talking about it or creating a tag line that can be placed on marketing materials such as door hangers and business cards.

4.2 KEY ISSUES AND CURRENT TRENDS IN INDIAThe growth of this sector is interlinked with the growth of the Indian economy and indirectly with the growth of infrastructure. The last few years have witnessed a phase of restructuring in the industry through acquisitions and joint ventures. This also reflects the active interest of international majors in the domestic market. Many international players have also appointed selling agents for importing and selling complete equipment in India.The relation between growth of economy and infrastructure can be seen from the graph shown below


http://www.ehow.com/education/


Source: http://bhi.nic.in/mining_construction_equipment .pdf

Figure 4.1 Co-Relation Between Status of Economy and the Industry

The construction and mining equipment industry is dominated by a few large manufacturers in each product segment. BEML supplies to nearly half the total market. BEML and Caterpillar lead in dumpers and dozers while L&T Komatsu and Telcon lead in excavators , JCB India in backhoe loaders and Escorts Construction Equipment Ltd. in Mobile Cranes.

4.3 SEGMENTATION AND POSITIONING

4.3.1 Construction Equipment growth in China: China is by far the largest emerging market for construction equipment. While within China local brands dominate the wheeled loader market, foreign brands capture a greater share of the market for crawler excavators, due to their superior technology.

Global players should consider entering the Chinese wheeled loader market as quickly as possible. Localizing production in China could significantly boost a CE company's global competitiveness. However, to be competitive in wheeled loaders, Western players must rethink their operational approaches and product offerings. While global OEMs continue to control China's excavator market, local players have steadily taken share away from low-cost foreign manufacturers. To fight back, foreign low-cost producers need to tap new ways to reduce costs, such as improving the range of value-added services they offer or providing new levels of customer support. They can also increase their local content levels and explore opportunities to adjust product specifications to include only the features the customers really want and are willing to pay for.




4.3.2 The challenge from emerging CE players:

The threat from low-cost players entering mature markets will likely come in two waves. In the first, low-cost South Korean players will further expand their mature-market presence. In the second, beginning around 2012, Chinese players will begin entering mature markets in the low-cost-product segment. In the face of these developments, mature-market players must act now to improve their cost position. They clearly require a defensive strategy focused on improving cost efficiency and further exploiting the existing advantages in technology, distribution networks, and brand positioning. Conversely, players from emerging countries seeking to expand into mature markets must improve their technology and product quality and begin to build sales and service networks. They must also position their brands competitively in the low-cost segments.

The major players in this segment who are also members of the Indian Earthmoving and Construction Industry Association Ltd. (IECIAL) are as follows :Ashok Leyland Ltd.Bharat Earth Movers Ltd.Caterpillar Commercial Pvt. Ltd.Ingersoll Rand India Ltd.JCB India Ltd.L&T Komatsu Ltd.Telco Construction Equipment Co. Ltd.Voltas Ltd.

4.4 PRODUCT QUALITY

Quality is the underlying strength of a company’s reputation and competitiveness. While manufacturing Construction equipment, utmost care is taken in design and fabrication to take advantage of the unique properties of Iron, steel and other raw materials. Careful selection of raw material, advanced manufacturing facility, deployment of latest technology and seamless integration of all the departments are the key factors that separate one company’s products from the rest.

The key to a long, healthy life for construction equipment is an inspection and maintenance program that is designed for early detection of damage. A small chip or pinhole, if not repaired immediately, can lead to corrosion of the steel substrate and could result in major harm to the equipment. The inspection process starts with a thorough review upon delivery of the construction equipment to the plant to ensure it was not damaged in transit. Thereafter, the equipment should be inspected at regular maintenance intervals ranging from several times a year, to once every two years, depending on the severity of service. More-frequent or



even continuous testing may be conducted if the operating conditions are especially severe, or if damage is suspected.

4.5 CUSTOMER SERVICE

As shown in Fig4. 2, the construction logistics process can be divided into internal and external components. An external logistics component covers the relation between a constructor and his(her) suppliers, whereas an internal logistics component deals with the relationships among various parties involved in the project, namely, constructor, designer, and owner (Jones and Riley 1985). Generally, traditional studies have approached customer service areas based on the relationship between constructors and their final clients.

However, this report focuses on the customer service area between the external logistics and internal logistics. Service level is determined by the constructor’s capacity to provide resources to internal agents on a site at the right time and at the right place while satisfying the correct specifications. Figure 2 illustrates the changing relationship between customers and suppliers in terms of service level. A constructor can play the role of a customer in its relationship with a material supplier, while it can also play the role of a supplier inits relationship with an owner. The customer service area that this paper focuses on is represented in Fig. 4.2.The issues of customer satisfaction and service quality generally dominate theories of customer service management. If we consider the whole body of research in the field of service management, it is a fundamental and recurring observation that higher customer satisfaction leads to better economic returns. This can be explained by key concepts such as customer reliability and a positive reputation for the firm.

4.5.1 Customer satisfaction

The function of the construction industry is to provide customers with facilities that meet their needs and expectations. One principle of logistics is a management philosophy that effectively determines the needs of the customer. Ensuring operational quality at each stage in the construction process should ensure that the quality of the final product will satisfy the final customer.

4.5.2 How to achieve customer satisfaction

There is no general consensus on the relationship between logistics and customer satisfaction, but the thrust of logistics research has been focused in the area of operations service management (Ganeshan et al. 1999). Parasuraman et al.(1994) have proposed a model suggesting that the customers’ overall satisfaction in a transaction results from a combination of operation service quality, product quality, and pricing. Other researchers also adhere to the idea that service quality leads to customer satisfaction.



4.6 PRICING POLICY

Production of a product depends on various factors like raw material, manpower, machinery, energy consumption etc. With the combination of all the factors of productions the final products is produced. These factors are to be paid in terms of wages, salaries, interest, dividends, profits etc. So while pricing the product all these factors are taken into consideration.

Construction equipments are generally priced depending on its capacity it uses and its working life. They are very expensive and generally its price ranges from thousands to lakhs of rupees per equipments. Generally companies allow payments on installments basis. Some credit period is also given to loyal customers. As there are several major players in this industry, they price their equipment at higher rates than other companies.

4.7 PROMOTION SCHEMES

Promotional schemes are always a good tool to attract customers. However the kind of promotional activities that one carries out differs for each industry. The promotional activities carried out for consumer durables are different than those for engineering industry. Promotional activities that can be carried out in this industry are:

Price cut due to competition

Free services are given for one or two years after the equipment is installed

Transportation charges are beared by the company manufacturing the equipment.

Free spare parts are given along with the equipment for replacement purpose.

4.8 DISTRIBUTION CHANNEL

Most producers do not sell their goods directly to their final users; between them stands a set of intermediaries performing a variety of functions. These intermediaries constitute a marketing channel which is also called as trade channel or distribution channel. Formally, distribution channels are sets of interdependent organizations involved in the process of making a product or service available for use. They are the set of pathways a product or service follows after production, culminating in purchase and use by the final end user.

The producer and the final customer are part of every cannel. For industrial goods and products the customers are also other industries. There are generally four types of Industrial distribution channel which are as follow: a) Zero level

b) One level

c) Two level



d) Three level

In India the whole Glasslining industry uses the zero level distribution channels. Here the manufacturer directly sells the equipment to the final industrial customer. Here the customers are various industries like Pharma, Chemical, Beverages, etc. These industries directly approaches the company’s manufacturing Glasslined equipments with their specific product requirements. All the three Glasslined equipment manufacturing companies have their branch offices in major metropolitan cities for taking orders and for providing customer services.

4.9 LOGISTICS MANAGEMENT

Logistics management research can be classified into three broad perspectives: (i) competitive strategy, (ii) firm focused tactics, and (iii) operational efficiencies. Competitive strategy issues have a long-term impact on the firm .Firms that focus upon tactical issues operate in a shorter time frame. Operational efficiencies involve day-to-day decisions that can be altered quickly (Ganeshan et al. 1999). The construction industry is greatly concerned with aspects of daily operations, which are typically operational decisions, reflecting day-to-day operations up to 2 weeks ahead. The construction industry attempts to optimize daily operations of facilities through careful planning, organizing, directing, and controlling activities before and during the construction .In terms of construction logistics, multidisciplinary processes are categorized as follows: (i) material supply, storage, processing and handling; (ii) manpower supply; (iii) schedule control;(iv) site infrastructure and equipment location; (v) sitematerial flow management on a job site; and (vi) management of information related to all physical and services flows. Although implementation and operational service management are significant aspects of construction logistics that affect day-to-day operations, one must keep in mind that logistics is rooted in senior-level decision making.

In general, logistics functions in a construction firm can be divided into supply logistics and site logistics. Figure 1 illustrates the construction logistics tasks. Supply logistics are related to activities in the production process that are cyclic. These activities include specification of supply resources (materials, equipment, and personpower), supply planning, acquisition of resources, transport to a site and delivery, and storage control. Site logistics are related to physical flow, namely, planning, organizing, directing, and controlling on-site processes. The management of handling systems, safety equipment, site layout, defining activity sequence, and resolving conflicts among various production teams related to the on-site activities are all part of site logistics (Fred and Francisco 1999). The most appropriate system to describe the material logistic tasks is developed at hierarchical levels at the point of interaction between internal and external systems. It should always be kept in mind that the main objective of a logistics process is to meet the customer’s requirements.



Figure 4.2Material and Information flow

Figure 4.3Juran’s triple role and construction logistics process

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Every party in a process plays three roles: supplier, processor, and customer. Juran (1988) defines this interchanging role as the “triple role” concept. These three roles are carried out at every level of the construction process — corporate, division, department, and individual. This triple role concept is illustrated by the right-hand side of Fig.4.2. The owner is a customer of the designer. Using the designer, the owner processes the design and supplies plans and specifications to the constructor. In this process, the constructor becomes the customer of the designer, who uses the designer’s plans and specifications, processes the construction, and supplies the completed facility to the owner. Traditionally, the roles of the three parties have not been viewed this way, but this assists in demonstrating that construction is a process. Moreover ,the logistics principles that have been applied to the processes of other industries are potentially applicable to the construction industry.

4.10 PROFILE OF KEY PLAYERS:

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 Maharashtra.•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 Movers Ltd (BEML)•BEML is the largest player in the earthmoving equipment sector.•The company turnover was around US$ 630 million in 2007–08.•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.

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L&T Case L&T Komatsu•The companies together had a turnover of US$ 156 million in 2007. Both thecompanies 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 India Ltd•The public limited company (majority owned by Ingersoll-Rand) is a market leader 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.

Tractors India Ltd (TIL)•This public limited company is a market leader in the slew cranes segment in India.•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 Equipment Company Ltd (Telcon)•The company is a market leader in excavators.•It has collaborations with Hitachi Construction Machinery Company, Japan, for hydraulic excavator and cranes; John Deere, USA, for backhoe loader technology; 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.

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 & BoyceMfg. Co. Ltd•This private limited company’s product list includes forklifts (diesel, electric, battery).•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).\

Construction Equipment Ltd (ECEL)•It pioneered the manufacture of pick-and-carry cranes in India.•The company is a subsidiary of Escorts Ltd It had a turnover of US$ 61 million in 2007.•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 Equipment Ltd (ACE)•This public limited company had a turnover of US$ 84.38 million in 2008–09.•Its product range includes hydraulic mobile pick-n-move cranes, forklift trucks, 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.

4.11 KEY ISSUES AND SUCCESS FACTORS ACCORDING TO THE CURRENT TRENDS

After-sales services Indian manufacturers do not earn much in after-sales when comparedto global majors; manufacturers have to provide constant after-sales services to customers.

Focus on R&Dandinnovation

Manufacturers should provide customized solutions by providing additional accessories. Innovation is possible by understanding the 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-endSolutions

The construction equipment-user industry is cost conscious and, hence, it 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. Manufacturersshould act as one-stop shops for customers.

Forming industryAssociations

Manufacturers should strengthen industry associations. A good industry association provides a platform for technological discussions and will lead to consolidation.

4.12 MARKET SHARE OF VARIOUS SEGMENTSWorld’s seventh largest country by area and second biggest by population makes India one of the most dynamically growing and still, largely untapped construction equipment industry. The country has witnessed massive investment in the construction industry from both public and private enterprises in recent years. Multibillion dollar investments made in constructing roads, ports, power plants, telecommunication sector, urban infrastructural developments, etc have paved the way for construction equipments demand to grow substantially in recent years.



Figure4.4 CE Industry market Share

Earthmoving Equipments constitute the biggest segment and Excavators, the largest product line within the segment

• The Excavator market is estimated at US$ 1.4 billion• Growing at 30% CAGR, driven by 22-60 tonne excavators

The construction equipment industry in India has witnessed consistent double digit CAGR growth over the past few years. The global economic slowdown had its moderate effects on the industry, but it regained growth momentum in FY 2010 and showed positive year-on-year growth. Particularly, the earth moving segment is driving the overall industry with strong demand emanating from government backed infrastructure projects. The segment is poised for an unprecedented CAGR of around 18% during FY 2011 - FY 2014.



CHAPTER 5FINANCIAL ANALYSIS

Financial analysis refers to an assessment of the viability, stability and profitability of a business, sub-business or an industry. Financial analysis often assesses the following:Profitability - The ability to earn income and sustain growth in both short-term and long-term. The degree of profitability is usually based on the income statement, which reports on the results of operations.Leverage - The ability to pay obligation to creditors and other third parties in the long-term.Liquidity - The ability to maintain positive cash flow and satisfying short-term obligations.Activity - The efficiency with which industry or a firm manages and utilizes its assets. These are often called as turnover ratios because they indicate the speed with which assets are converted into sales.

5.1 PROFIT MARGIN ANALYSISIn the income statement, there are different levels of profit or profit margins - gross profit, operating profit, pre-tax profit and net profit. The term "margin" can apply to the absolute number for a given profit level and/or the number as a percentage of net sales/revenues. Basically, it is the amount of profit at the gross, operating, pre-tax or net income level generated by the company as a percent of the sales generated.

5.1.1 Gross Profit Margin A company's cost of sales, or cost of goods sold, represents the expense related to labour, raw materials and manufacturing overhead involved in its production process. This expense is deducted from the company's net sales/revenue, which results in a company's first level of profit, or gross profit. Industry characteristics of raw material costs, particularly as these relate to the stability or lack thereof, have a major effect on a company's gross margin and generally, management cannot exercise complete control over such costs.

5.1.2 Operating Profit MarginBy subtracting selling, general and administrative (SG&A), or operating, expenses from a company's gross profit number, we get operating income. Management has much more control over operating expenses than its cost of sales outlays. Positive and negative trends in this ratio are, for the most part, directly attributable to management decisions. . Hence this accounts for both Cost of Goods sold and Administration/Selling expenses.



5.1.3 Net Profit MarginOften referred to simply as a company's profit margin, it is the bottom line and most often mentioned when discussing profitability. Net Profit Margin tells you exactly how the managers and operations of a business are performing. Net Profit Margin compares the net income of a firm with total sales achieved.

Year 2006 2007 2008 2009 2010

Gross Profit Margin 24.18% 26.06% 24.93% 22.84% 22.81%

Operating Profit Margin 8.61% 13.53% 14.49% 14.50% 16.02%

Net Profit Margin 0.59% 5.80% 7.32% 7.36% 8.17%

ITR (Days) 87.41 75.74 80.36 100.69 102.81

Table 5.1 Profit Margin and ITR Analysis

Figure 5.1 Profit Margin

Analysis: The gross profit margin is used to analyze how efficiently a company is using its raw materials, labour and manufacturing-related fixed assets to generate profits. Here in this industry we are finding that the Gross Profit Margin is decreasing.Analysis: The higher the Operating Profit Margin, the better. This is because a higher Operating Profit Margin shows the company, here industry, can keep its costs under control. A higher Operating Profit Margin can also mean sales are increasing faster than costs, and the industry is not low in cash. Hence even though the Gross Profit Margin is decreasing this industry is having a positive growth in the Operating Profit Margin. Here we are seeing that



though the inventory turnover has increased by 20 days i.e. approximately 25 percent but this industry is observing a big increase in the Net Profit Margin. Also this industry being a capital intensive industry there is bound to have a higher inventory turnover ratio.

5.2 PROFITABILITY ANALYSIS – INVESTMENT BASED

5.2.1 Return on AssetsThis ratio indicates how profitable a company is relative to its total assets. The return on assets (ROA) ratio illustrates how well management is employing the company's total assets to make a profit. The higher the return, the more efficient management is in utilizing its asset base. The ROA ratio is calculated by comparing net income to average total assets, and is expressed as a percentage.

2006 2007 2008 2009

7.94% 15.79% 14.83% 13.53%

Table 5.2 ROA Analysis

Figure 5.2 ROA Ratio

Analysis: The need for investment in current and non-current assets varies greatly among companies. Capital-intensive businesses (with a large investment in fixed assets) are going to be more asset heavy than technology or service businesses. Hence in the case of capital-intensive businesses, which have to carry a relatively large asset base, will calculate their ROA based on a large number in the denominator of this ratio, leading to a lower ROA ratio. But still there has been an increase in ROA. This increasing return can help companies in this industry to create good amount of reserves so that when low times start they have a good support. Also with increase in reserves (assuming increasing ROA increases reserves).



5.2.2 Return on EquityThis ratio indicates how profitable a company is by comparing its net income to its average shareholders' equity. The return on equity ratio (ROE) measures how much the shareholders earned for their investment in the company. The higher the ratio percentage, the more efficient management is in utilizing its equity base and the better return is to investors.

Year 2006 2007 2008 2009 2010

ROE 5.02% 40.77% 26.79% 21.42% 16.07%

Table 5.3 ROE Analysis

Figure 5.3 ROE Ratio

Analysis: A high, or low, ROE needs to be interpreted in the context of a company's debt-equity relationship. Thought the return as compared to equity is increasing but still we need to refer to the debt that the industry has taken so as to avoid any confusion by considering equity alone. The answer to this analytical dilemma can be found by using the return on capital employed (ROCE) ratio. However the industry is seeing growth and the growth is financed by both equity and debt. As it will be seen below that the industry is gradually decreasing its debt.

5.2.3 Return on Capital EmployedThe return on capital employed (ROCE) ratio, expressed as a percentage, complements the return on equity (ROE) ratio by adding a company's debt liabilities, or funded debt, to equity to reflect a company's total "capital employed". This measure narrows the focus to



gain a better understanding of a company's ability to generate returns from its available capital base.By comparing net income to the sum of a company's debt and equity capital, investors can get a clear picture of how the use of leverage impacts a company's profitability. Financial analysts consider the ROCE measurement to be a more comprehensive profitability indicator because it gauges management's ability to generate earnings from a company's total pool of capital.

YEAR 2006 2007 2008 2009 2010

ROCE 20.19% 36.60% 27.18% 24.09% 18.93%

Table 5.4 ROCE Analysis

Figure 5.4 ROCE

Analysis: The return on capital employed is an important measure of a company's profitability. As said above ROCE is better for evaluating the return. Here the return is decreasing for the capital that is being employed for the company’s working.

5.3 PROFITABILITY RATIOS – MARKET DRIVEN

5.3.1 EPS



EPS shows what shareholders earned by way of profit for a period. The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company's profitability. The most widely used ratio, it tells how much profit was generated on a per share basis. The earnings per share ratio is mainly useful for companies with publicly traded shares

5.3.2 DPSDividend per share (DPS) is the total dividends paid out over an entire year (including interim dividends but not including special dividends) divided by the number of outstanding ordinary shares issued. DPS shows how much the shareholders were actually paid by way of dividends.

D - Sum of dividends over a period (usually 1 year)SD - Special, one time dividendsS - Shares outstanding for the period

YEAR 2006 2007 2008 2009 2010

EPS 8.08 14.76 14.10 12.81 11.12

DPS 3.62 4.25 3.69 2.42 1.98

Table 5.5 EPS and DPS Analysis

Figure 5.5 EPS and DPS



Analysis: The industry is showing increasing trend in EPS. Dividends are a form of profit distribution to the shareholder. Having a growing dividend per share can be a sign that the company's management believes that the growth can be sustained. But as this industry is capital intensive industry the major part of profit is reinvested for capacity creation or technology enhancement. Unlike other industries in this industry low DPS does not mean that the industry is not growing. Even though DPS is low but still the industry is growing.

5.4 LEVERAGE ANALYSISBy using a combination of assets, debt, equity, and interest payments, leverage ratios are used to understand a company's ability to meet it long term financial obligations. The three most widely used leverage ratios are the debt ratio, debt to equity ratio, and interest coverage ratio.

5.4.1 Total Debt RatioSeveral debt ratios may be used to analyze the long-term solvency of a firm. The firm may be interested in knowing the proportion of the interest-bearing debt (also called funded debt) in the capital structure. It may, therefore, compute debt ratio by dividing total debt (TD) by capital employed (CE) or total net assets (NA). Total debt will include short- and long-term borrowings from financial institutions, debentures/bonds, deferred payment arrangements for buying capital equipments, and bank borrowing, public deposits and any other interest-bearing loan. Capital employed will include total debt and net worth (NW).

Year 2006 2007 2008 2009 2010Total Debt Ratio 64.68% 54.69% 38.18% 31.27% 31.40%

Table 5.6 Total Debt Ratio Analysis

Figure 5.6 Total Debt Ratio



Analysis: The debt composition of the total capital employed is decreasing. It has decreased by around 30 percent from 64 percent to 31 percent. The industry in general showing growth trend and also it is expecting a good growth. This low debt can be seen as they have sufficient capital to fund their working or that the industry will utilize this debt when it wants to expand.

5.4.2 Debt-to-Equity ratioIt indicates the relationship between the external equities or outsiders funds and the internal equities or shareholders funds. Debt to equity ratio indicates the proportionate claims of owners and the outsiders against the firms assets. The purpose is to get an idea of the cushion available to outsiders on the liquidation of the firm. The debt-equity ratio is another leverage ratio that compares a company's total liabilities to its total shareholders' equity. This is a measurement of how much suppliers, lenders, creditors and obligors have committed to the company versus what the shareholders have committed.To a large degree, the debt-equity ratio provides another vantage point on a company's leverage position, in this case, comparing total liabilities to shareholders' equity, as opposed to total assets in the debt ratio. Similar to the debt ratio, a lower the percentage means that a company is using less leverage and has a stronger equity position.

Year 2006 2007 2008 2009 2010Debt-Equity 2.21 1.66 1.50 1.46 1.94

Table 5.7 Debt-Equity Analysis

Figure 5.7 Debt-Equity

Analysis: A ratio of 1:1 is usually considered to be satisfactory ratio although there cannot be rule of thumb or standard norm for all types of businesses. But again specific industries tend to exhibit specific values of debt to equity ratios. Capital-intensive industries like


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construction equipment industry exhibit a debt to equity ratio which is greater than two. The trend in this industry is showing that it is becoming more dependent on equity. Hence if the industry wants to expand there is scope to do so, as it has unutilized debt capacity 5.4.3 Interest Coverage RatioA ratio used to determine how easily a company can pay interest on outstanding debt. The interest coverage ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) of one period by the company's interest expenses of the same period:

Year 2006 2007 2008 2009 2010Interest Coverage Ratio 5.58 9.13 7.38 6.50 4.29

Table 5.8 Interest Coverage Ratio Analysis

Figure 5.8 Interest Coverage Ratio

Analysis: The increasing sales volume in this sector is help the industry to cover up their debts which can be seen from above graph. Its increasing graph does show that the industry can easily cover up their interest expense.

5.5 COST STRUCTURE ANALYSISThe cost structure analysis is the analysis of the expenses that a firm must take into account when manufacturing a product or providing a service. Types of cost structures include


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transaction costs, sunk costs, marginal costs and fixed costs. The cost structure of the firm is the ratio of fixed costs to variable costs. Here we are comparing various expenditure with respect to the total income to analyze which cost component consumes how much part of the income and also to see the factors where the company can improve its efficiency.

2006 2007 2008 2009 2010

Total Income 100 100 100 100 100

EXPENDITURE as Percentage of Total Income: Raw Materials 59.23 60.01 59.1 56.57 51.36

Power & Fuel Cost 1.58 1.38 0.99 0.93 0.94

Other Manufacturing Expenses 8.6 8.83 8.97 9.82 15.01

Employee Cost 8.9 7.68 7.69 8.99 9.19

Selling and Administration Exp. 6.42 7.01 6.67 6.13 5.32

Miscellaneous Expenses 7.43 2.43 2.94 4.01 2.87

Interest 2.76 2.37 1.5 1.84 2.36

Depreciation 1.29 1.07 1.07 1.29 1.42

Tax 3.37 3.52 3.42 3.01 3.43

Table 5.9 Cost Structure Analysis


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Table 5.9 Cost Structure

As the construction equipment industry is a capital intensive industry requiring costly equipments to make the finished product the major part of the total cost is that of Raw material. Around 55-60 percent of the cost is of raw materials only so its can be a good target to control cost. The products of this industry are like the FMCG market where heavy marketing is required. Here in this industry the selling and administrative expense is not very high. Against raw material other cost are very less. Also employee and other manufacturing expense together contribute 20 percent of the expense.

5.6 DUPONT ANALYSIS

DuPont analysis is a formula/expression which breaks ROE (Return On Equity) into parts. The return on equity (ROE) ratio is a measure of the rate of return to stockholders. The DuPont Model is a technique that can be used to analyze the profitability of a company using traditional performance management tools. To enable this, the DuPont model integrates elements of the Income Statement with those of the Balance Sheet.



Years 2006 2007 2008 2009 2010

No. of Companies

27 27 27 26 17

Profit MarginEBIT/ Sales

7.99% 12.53% 13.37% 13.71% 15.47%

Assets Turnover

Sales / NA 3.49 3.92 2.58 2.20 1.53

Return on Net Assets

EBIT / NA 27.88% 49.18% 34.43% 30.22% 23.74%

Financial Leverage (Income)

PAT / EBIT

7.37% 46.25% 54.74% 53.68% 52.83%

Financial Leverage (Balance Sheet)

NA / NW 2.44 1.79 1.42 1.32 1.28

ROE PAT / NW 5.02% 40.77% 26.79% 21.42% 16.07%

Table 5.10 DuPont Analysis

Figure 5.10 DuPont Chart



CHAPTER 6INDUSTRY ANALYSIS

A market assessment tool designed to provide a business with an idea of the complexity of a particular industry. Industry analysis involves reviewing the economic, political and market factors that influence the way the industry develops. Major factors can include the power wielded by suppliers and buyers, the condition of competitors, and the likelihood of new market entrants.

6.1 PESTEL ANALYSIS

Fig. 6.1 PESTEL analysis for construction equipment industry


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6.1.1 Political Factors:1. Taxation Policies: CE machinery is mobile and is transported to different locations

countrywide depending on the requirement. However, due to different taxation structures in different states like different rates of VAT, entry taxes, octrois, local levies etc., the prevailing entry permits and RTO rules, the manufacturers and the customers face lot of obstacles in running a smooth business while moving across the country.

2. Foreign Trade Regulations: Another intriguing factor is related to imported machinery. In India, the imported machinery can easily be RTO registered anywhere without the need of adequate testing at State Transport Authorities in different states, while, the machinery manufactured in India has to be tested as well as registered – this naturally does not provide level playing field for Indian manufacturers.

6.1.2 Economical Factors:1. Business Cycle: Indian construction equipment industry has gone ahead and built up

big capacities looking into the boom in infrastructure.2. Fluctuations in prices of inputs: Steel prices have gone up by over 25 per cent. Steel

is one of the major inputs for all construction equipment and their aggregate inputs. Hence there is a major impact of input cost increase for all Indian construction equipment manufacturers.

3. Exchange Rate: The rupee till recently was hardening against world majors. The recent loss in strength of the rupee has also made inputs of construction equipment costlier.

4. Interest rates: Due to inflation Government and RBI has tightened liquidity by increasing CRR and planning to increase interest rates and this would have an effect of reducing funds available for not only consumption but also investment. This would adversely affect demand for construction equipment. It has already affected demand for smaller equipment like backhoe loaders.

6.1.3 Social Factors:1. Geographical Location: As these machineries are very heavy, they are not useful in

hilly areas or fertile land.

6.1.4 Technological Factors:1. Government and industry’s focus on technology: Technology for manufacturing

special machineries like earth moving equipments is not available in India. Therefore it is necessary to permit the import of technology from international reputed manufactures.

2. Speed of Technology Transfer: As seen in the recent years foreign engineering companies are planning to set up manufacturing base in India. Already 20 have either set up their plant her whereas are being represented through dealers.

6.1.5 Environmental Factors:1. Some equipment is used for mining and excavating purpose which cause imbalance in

layers of land which may enhance probability of earthquake.2. These machineries are running by diesel or oil, which create noise and air pollution.



6.1.6 Legal Factors:1. Policies related to Import and Export: Government of India has already initiated

several steps for arresting the inflation spiral and support growth. For instance, import duties on steel are being reduced or eliminated. Export of steel is being discouraged so as to improve steel availability for domestic consumption.

6.2 Porter’s FIVE FORCES ANALYSISMichael Porter's famous Five Forces of Competitive Position model provides a simple perspective for assessing and analyzing the competitive strength and position of a corporation or business organization.

Fig.6.2 Porter’s five forces analysis

6.2.1 Entry BarriersIn construction equipment industry threat of new entrants is very low because this industry requires huge capital investment for setting up manufacturing unit as well as working capital for manufacturing machineries. For manufacturing construction equipments knowledge of advance technology is essential which also creates entry barrier.

6.2.2 Bargaining Power of BuyersBefore 1960s when competition among players is very little, buyers had limited bargaining power. But after 1991 due to entry of new players this trend is changing and now buyers have moderate bargaining power.

6.2.3 Threat of SubstitutesThreat of substitute is very low because every construction equipment has specific purpose hence it can be not easily replaced by anyone else. Substitution is only possible through value addition like increase in efficiency or new technology etc.



6.2.4 Bargaining Power of Suppliers Demand for construction equipment is increasing day by day due to increase in infrastructural and mining activities where as supply of such equipments is limited so suppliers have high bargaining power.

6.2.5 Competitive Rivalry within an industryCompetition among suppliers is moderate because demand is high and supply is low. There is competition between players for better maintenance service, timely delivery, Price etc.

Fig. 6.3 Porter’s five forces analysis for construction equipment industry


Well-established players and recognized playersCheaper imports can reduce the market share of present manufacturersIncreasing growth in demandPlayers with technological know-how can succeed, as technology is the major entry barrierCapital intensive industry

Barriers of entryLOW

Bargaining power of buyers

MODERATE

Price and service are the differentiatorsLack in sharp differentiation leading to competition in priceHuge demand for construction equipment in future

Inter-firm rivalry MODERATE

Earlier, manufacturers/sellers held sway because of huge demandWith the entry of new players, this trends expected to changeManufacturers now are providing end-to-end solutions to buyers

Bargaining power of suppliers

HIGH

Suppliers have not kept pace with growth in demand, leading to delayed deliveriesImport of some critical componentsVolatility of steel prices impacting production costLess number of suppliers for high demand

Threat of substituteLOW

Every construction equipment has a specific purposeSubstitutes 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


6.3 SWOT ANALYSIS

SWOT analysis is a tool for auditing an organization and its environment. It is the first stage of planning and helps marketers to focus on key issues. SWOT stands for strengths, weaknesses, opportunities, and threats. Strengths and weaknesses are internal factors. Opportunities and threats are external factors.

Strengths: characteristics of the business or team that give it an advantage over others in the industry.Weaknesses: are characteristics that place the firm at a disadvantage relative to others.Opportunities: external chances to make greater sales or profits in the environment.Threats: external elements in the environment that could cause trouble for the business.

6.3.1 Strengths1. Easy Availability of Raw material: India is the fifth-largest producer of crude steel

in the world (2008), with a production volume of 54.5 million tonnes.2. Strong Government focus: The Union Budget 2010–11 has allocated US$ 36.16

billion to the infrastructure sector, reflecting the Government of India (GOI)’s strong focus on the development of India’s infrastructure.

3. Import of technology: Many German engineering companies are planning to setup manufacturing base to India. In 2002, India imported German construction machinery worth 61 million Euros about 11.8% higher than 2001.

4. High Growth potential: Government expenditure on infrastructure is likely to result in increased construction expenditure of nearly US$ 253. 94 billion (INR 12,189 billion) between 2008–09 and 2012–13).

6.3.2 Weaknesses:1. Capital intensive: Construction Equipment industry is capital intensive industry.

Capital required for fixed expenses like setting up industrial unit, procuring machinery etc is high as well as raw material expenses like steel is also very high.

2. Lack of innovation: To develop India as a major manufacturing hub it is necessary to focus on R & D. But in the case of construction equipment the focus on R & D is less compare to the global counter parts. With few exceptions, technology is imported from global partner or parent companies, rather than developing it indigenously here.

6.3.3 Opportunities:The construction equipment industry in India has evolved with growing domestic demand.

1. Infrastructural Development: Earth Moving and construction machineries are linked with infrastructural work like construction of roads, mining of coal and minerals, Power projects and ports. With Government’s emphasis and priority on the development of infrastructure this industry has good growth prospects in the coming



years. Industry is showing enormous progress and has grown both in size and diversity.

2. Capacity Expansion: Capacity expansion in the steel, cement, oil refining and power sectors to meet growing infrastructure investments in India, is also expected to generate demand for construction equipment.

3. Export Opportunities: The export opportunity is expected to grow on the back of rising cost pressures on developed countries and due to the emergence of low-cost competitive suppliers and original equipment manufacturers (OEMs) in India.

6.3.4 Threats:

1. Government have drawn robust plan for infrastructure development but still poor quality of existing infrastructure acts as a bottle neck as significant resource is utilized for its repairs and maintenance. This acts as a hurdle for implementation of new projects, which also hampers the overall economic development of the economy and the sector.

2. Equipment Rental industry: Equipment rental business is currently pegged at around 7-8 per cent of the total construction equipment industry is expected to grow appreciably in the coming years.



CHAPTER 7FUTURISTIC SENARIO

7.1 FUTURE GROWTH OF CONSTRUCTION EQUIPMENT INDUSTRY IN INDIA

World’s seventh largest country by area and second biggest by population makes India one of the most dynamically growing and still, largely untapped construction equipment industry. The country has witnessed massive investment in the construction industry from both public and private enterprises in recent years. With Prime Minister Manmohan Singh projecting investments of $320 billion in the infrastructure sectors like constructing roads, ports, power plants, telecommunication sector, urban infrastructural developments, etc over the next few years have paved the way for construction equipments demand to grow substantially in recent years. As construction equipments account for 4%-24% of the total construction costs in various sectors, the industry recorded strong revenue grew.

According to research report “Booming Construction Equipment Market in India”, the construction equipment industry in India has witnessed consistent double digit CAGR growth over the past few years. The global economic slowdown had its moderate effects on the industry, but it regained growth momentum in FY 2010 and showed positive year-on-year growth. Particularly, the earth moving segment is driving the overall industry with strong demand emanating from government backed infrastructure projects. The segment is poised for an unprecedented CAGR of around 18% during FY 2011 – FY 2014.

The report has also studied the high growth potential of equipment rental industry. The construction equipment rental market is small, but it has seen impressive growth results over the past few years. Sensing the inorganic demand for rental equipments, OEMs also forayed into renting their equipments to consultants and to independent builders. In coming 3-4 years, the sector is expected to transform in a fully fledged industry providing significant boost to overall industry developments. Over the last 3-4 years, various new entrants made inroad to the Indian construction equipment industry. Some of the biggest names belong to Japan, the US and Korea. Besides, a number of domestic companies are either expanding their domestic capacities or diversifying their product portfolio. With the emergence of new market players and expansion plans underway, the industry is expected to become more competitive and fragmented. However, these new capacities will find their home quite comfortably in the domestic market amid growing mechanization and proposed large infrastructural projects.The industry’s expectations of the future evolution in this sector are represented here in graphical form. Most of the current players expect that new players will enter the Indian market.



Figure 8.1 Industry’s Future Evolution

Future market situation and demandDomestic demand was Rs 7000 crores and exports were Rs 330 crores in previous a year which is expected to grow in future. Construction and road making industry would be experiencing comparatively more growth than other units because of some major projects in the pipeline. This would also result in the huge demand of such machinery.the construction equipment industry can contribute a lot by bringing in new technology and modernization of project management.



CHAPTER 8CONCLUSION

The construction equipment industry is primarily driven by three key sectors:• Construction• Mining• ManufacturingThe Indian construction equipment industry is a key segment of the manufacturing sector and is poised for excellent growth in the coming years. The Indian Construction Equipment sector has an estimated market size of US$ 2.4 – 2.6 billion for the year 2008-09. The industry has been growing due to the large investments made by the Government and the private sector infrastructure developments. The prospects of the construction equipment industry look attractive with a projected investment of US$ 320 billion in the infrastructure sector over the next few years. The Indian market is catered by about 200 domestic manufacturers (small, medium & large). Earthmoving equipment, material handling equipment and road construction equipment are key segments expected to contribute to the bulk of the growth, driven by construction activity in the parent sectors.

Though the Indian construction equipment industry is a fraction of the global market, whose size is over US$ 75 billion, it has been growing at an average of 30 per cent annually compared to the global growth of 5 per cent. India is one among the top 10 markets for construction equipment and is one of the key international markets.

To leverage this opportunity, Indian construction equipment manufacturers need to focus on developing individual and pooled capabilities to develop global competitiveness across the sector. Collaborative endeavours to provide integrated services, industry bodies to promote the industry’s interests and working with the Government to promote technology development are some of the key measures to be taken.

Indian construction equipment manufacturers invest very little in Research and Development (R&D) compared to global majors. This is a key lacuna that can hamper growth – product innovation and new product development are key capabilities to maintain a pipeline of new products, which is critical for success in the increasingly competitive market.

Equipment in India is typically used for 15 to 20 years, indicating the significant potential for maintenance and service activities, apart from spare parts sales, across the usage cycle. Hence a clear focus on service is necessary for companies to grow and remain competitive. This needs to translate into developing capabilities in training, supply chain management and distribution reach.



ANNEXURES Annexure 1 Balance Sheet of Industry (2006-2010) Rs. In '0000000 Year 2010 2009 2008 2007 2006 No. of. Companies 17 26 27 27 27 SOURCES OF FUNDS : Share Capital 247 941.25 941.58 971.32 937.83 Reserves Total 5205.1 4461.45 3167.76 753.55 85.21 Equity Share Warrants 0 8.78 8.78 0 0 Equity Application Money 0.44 152.85 100.23 4.69 3.81 Total Shareholders Funds 5452.54 5564.33 4218.35 1729.56 1026.85 Secured Loans 2037.12 1923.22 1800.4 955.28 856.7 Unsecured Loans 458.27 608.58 804.49 1132.37 1023.78 Total Debt / Loan Funds 2495.39 2531.8 2604.89 2087.65 1880.48 Total Liabilities 7947.93 8096.13 6823.24 3817.21 2907.33 APPLICATION OF FUNDS : Loans 0 0 0 0 0 Advances 0 0 0 0 0 Gross Block 2848 4321.97 3861.49 3144.57 2848.18 Less: Accumulated Depreciation 1287.29 2083.83 1918.73 1822.02 1719.43 Less:Impairment of Assets 0 0 0 0 0 Net Block 1560.71 2238.14 1942.76 1322.55 1128.75 Lease Adjustments 0 0 0 0 0 Capital Work in Progress 125.87 258.2 230.28 157.77 108.34 Producing Properties 0 0 0 0 0 Investments 857 760.82 761.41 587.82 305.4 Current Assets, Loans & Advances Inventories 3020.08 4337.57 3312.35 2517.31 2087.9 Sundry Debtors 4205.52 4953.9 4711.61 3236.12 2425.08 Cash and Bank Balance 1201.43 960.97 1039.66 692.74 787.18 Balance at Bank and Call Money 0 0 0 0 0 Loans and Advances 1746.09 1924.5 1498.63 1081.77 966.42 Total Current Assets 10173.12 12176.94 10562.25 7527.94 6266.58 Less: Current Liab. & Prov. Current Liabilities 3765.42 5890.61 5409.75 5074.7 4342.21 Provisions 981.68 1389.58 1253.33 684.53 555.64 Total Current Liabilities 4747.1 7280.19 6663.08 5759.23 4897.85 Net Current Assets 5426.02 4896.75 3899.17 1768.71 1368.73 Miscellaneous Expenses not writtten off 4.12 15.44 49.18 25.36 42.77 Deferred Tax Assets 108.33 90.58 65.51 53.4 48.06 Deferred Tax Liability 134.12 163.8 125.07 98.4 94.72 Net Deferred Tax -25.79 -73.22 -59.56 -45 -46.66 Total Assets 7947.93 8096.13 6823.24 3817.21 2907.33 Contingent Liabilities 2784.07 4707.54 4023.01 2902.14 2250.43



Annexure 2 Profit and Loss Account of Industry (2006-2010) Rs. In '0000000 Year 2010 2009 2008 2007 2006 No Of Companies 17 26 27 27 27 INCOME : Sales Turnover / Operating Income 10721.76 15723.66 15045.05 12130.79 8718.87 Excise Duty 370.61 852.07 1162.36 897.29 629.97 Net Sales 10351.15 14871.59 13882.69 11233.5 8088.9 Other Income 376.68 620.24 389.87 240.01 258.85 Stock Adjustments 90.48 406.96 442.94 42.2 93.47 Total Income 10818.31 15898.79 14715.5 11515.71 8441.22 EXPENDITURE : Raw Materials 5556.74 8994.48 8696.37 6910.34 4999.6 PACKING MATERIAL INCLUDED IN RMC Power & Fuel Cost 101.6 147.51 145.89 158.36 133.52 Other Manufacturing Expenses 1624.08 1561.6 1320.04 1016.43 725.99 Employee Cost 993.77 1429.12 1131.46 883.88 751.23 Selling and Administration Exp. 575.95 975.07 982.1 806.98 541.79 Miscellaneous Expenses 310.54 638.11 432.69 279.63 627.51 Less: Pre-operative Expenses Capitalised 2.72 3.12 4.63 60.27 34.66 Total Expenditure 9159.96 13742.77 12703.92 9995.35 7744.98 Operating Profit 1658.35 2156.02 2011.58 1520.36 696.24 Interest 255.11 292.12 220.24 272.39 233.07 Gross Profit 1403.24 1863.9 1791.34 1247.97 463.17 Depreciation 153.41 205.73 157.14 123.31 109.23 Profit Before Tax 1249.83 1658.17 1634.2 1124.66 353.94 Tax 370.9 479.07 502.98 404.8 284.54 Fringe Benefit tax 0.01 10.5 10.82 10.38 10.33 Deferred Tax 2.84 11.19 19.32 6.26 7.74 Reported Net Profit 876.08 1157.41 1101.08 703.22 51.33 Extraordinary Items 12.49 0.11 20.4 -3.06 -289.23 TOTAL EXTRA ORDINARY INCOME / EXPENDITURE Adjusted Net Profit 863.59 1157.3 1080.68 706.28 340.56 Adjustment below Net Profit -9.17 222.74 2.13 -0.15 1100.34

P & L Balance brought forward 783.31 -591.66 -953.79 -1862.48-

2618.09 Statutory Appropriations 0 0 0 0 0 Appropriations 464.89 702.38 714.95 584 417.76

P & L Balance carried down 1185.33 86.11 -565.53 -1743.41-

1884.18 Equity Dividend 154.2 220.17 283.67 203.18 152.59 Preference Dividend 0.15 1.71 1.61 0.01 0.24



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Books: Pandey I M,Financial Management, Ninth Edition, Vikas Publishing House Ltd., New

Delhi. Johnson Gerry and Scholes Kevan, Exploring Corporate Strategy, Sixth Edition,

2004, Prentice-Hall of India Pvt. Ltd., New Delhi. Singhal Vikas, Indian Industry 2006, New Delhi, PP 364-366

Reports: Centre for Monitoring Indian Economy Pvt. Ltd.

Websites: dhi.nic.in/MINING-CONSTN-EQUIPMENT.pdf ibef.org/download%5Cconstruction_equipment_27feb_0812.pdf www.engr.wisc.edu/cee/faculty/russell_jeffrey/016.pdf www.capitaline.com http://www.projectsmonitor.com/detailnews.asp?newsid=17616

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