Premal Thaker, President, Crane Owners Association of India (COAOI), discusses the scope and financial viability of the construction equipment / crane rental business, and the challenges that rental companies have to contend with in order to sustain their business.
How has the Indian market for Construction Equipment Rentals grown over the past few years?
India is a developing economy, and when it comes to infrastructure projects, we are seeing a gradual development of numerous major projects across India, such as metro rails, expansions of oil refineries, road extension projects like MTHL and Coastal, etc, all of which will bring exponential returns on investments.
Somehow, in the recent past, demand and supply have been at parity. Though it seems that in the coming times, demand for construction equipment would supersede supply, and this would be a significant phase as it will see a boom in rentals across the industry.
What scope and growth potential do you see in the crane rental business with respect to economic feasibility and sustainability over the long-term?
There is a huge potential in the next few years to dynamically expand the rental business. The crane rental segment is also growing due to the infra development projects across the country. Besides these, cranes are seeing demand from major industries like cement, petro-chemcials, refineries, power plants, for installation of wind turbines, routine maintenance jobs…all of which require medium or high capacity cranes to undertake lifting and erection jobs. Development of Smart City projects will also see a rise in demand for cranes, of which crane rentals will definitely comprise a significant percentage.
The high-speed rail project alone demands a plethora of equipment. We are just looking at the Mumbai-Ahmedabad phase at this moment. Subsequent extensions of the Bullet Train to other states and cities will bring substantial demand for equipment of all kinds.
The Covid-19 pandemic had led to an economic slowdown; but now there is no going below this. Businesses globally have started experiencing an upper curve and organizations that aim at exploring different avenues of growth will follow market trends and optimize their gains in the long-term.
A tricky situation is prevailing in the market: on one hand, the price of equipment has shot up due to the hike in steel prices, while the mandating of BSIV norms has also hit the financial viability of many rental companies. On the other hand, the price sensitive mid- and small contractors are considering renting as a more viable option. What is your view of this scenario and how will it impact the rental business?
One who adapts well with the changing times, wins. The BSIV engine norm was vital and it was high time the government mandated it. Steel prices are quite volatile. Looking at the bigger picture, if the prices start increasing, eventually, there will be a hike in each product and service along the supply chain.
Rental players are also finding it necessary to hike their rental rates in the current scenario. They will definitely benefit and the market will gather momentum, especifically when contractors begin to prioritize equipment renting over purchasing.
What are the common issues of rental companies and what collective steps should rental associations and big rental companies take to overcome the problems or to mitigate their effect?
One of the biggest issues being faced by rental companies are long outstanding payments from clients wherein GST needs to be paid every month even after not receiving hiring charges, which get delayed from months to years and are sometimes converted to bad debt.
Rental companies should fill a KYC form of each and every new client before giving any equipment. A basic research on potential clients can be done easily at the website of the Ministry of Corporate Affairs (MCA), and even at the clients’ company website, where information related to projects handled and ongoing can be viewed. Rental companies can also check the list of defaulter clients, which is being circulated regularly by various associations. All these measures will help equipment owners in having to cope with payment defaulters.
Another issue is that increasing competition amongst rental companies often leads to low rental rates for their construction equipment. If all the rental companies were to unitedly fix standard hiring charges, it would stop the price war.
Rental companies also have to deal with the unethical lifetime tax demanded by some states when any construction equipment enters the state or passes through the border for a short halt. I think the ‘One Nation One Road Tax’ policy should be implemented by the Central Government on a priority basis.
What kind of business support are you looking for from the OEMs with respect to solutions for idle machines, maintenance, refurbishment, availability of easy finance, and timely supply of spares?
Manufacturers will have to be more supportive in terms of after-sales service. Since the demand for equipment is increasing drastically, some of the manufacturers are currently focusing on quantity in order to be more competitive, but if they were to focus on offering quality products backed by their support and services, the sky would be the limit.
OEMs that provide the desired after-sales service for their customers will find success soon. Many OEMs have tied up with banks and NBFCs to provide easy finance to their customers. They are also providing maintenance services, even at remote locations through mobile vans, and ensuring timely supply of spares through strategically located warehouses - all this in a bid to prevent machine downtime of their machines and loss of profit to their customers. Some OEMs also undertake refurbishment of their machines, which increases the lifecycle value of the machines, and also saves customers the cost of investing in new machines.