One interesting development that have taken place in this sector in the recent past is that now few big contractors have started setting up their own equipment rental divisions of surplus equipment to use for their own projects as well as to rent them out to other contractors who don't want to buy due to complex market scenario. This initiative is giving more impetus to rental business.
Another factor behind the growth of equipment rental business in the country is that earlier rental equipment are used only for complex projects like thermal power, mega industrial projects, wind energy, port construction etc where heavy lifting cranes are required or only for the smaller projects where basic equipment like backhoe and pick-n-carry cranes are used but now the trend is changing fast and dem- and for other equipment like piling rigs, excavators, tower cranes, concrete equipment, road construction equipment etc is also elevating which is a good sign for this industry to grow at a steady pace.
Maria R. interacted with the companies engaged in this business soliciting their views on the problem confronting this sector and rental business prospect in India in the coming time. Some of the responses received are included in this report.
What is the market size of crane rental business in India and at what rate is it growing?
R. S. DesaiCrane rental market is growing continuously in the last 4-5 years. Infrastructural development has increased the demand for power & planned expansion projects in next 4-5 years. Currently, sectors like Power, Refinery & Wind Mill are the major drivers for growth in demand of crane rentals. We are expecting 10-15% increase in demand for cranes for rental every year.
Crane rental penetration is growing and looks to grow at good pace. What factors are boosting this growth & what is Sanghvi Movers Limited strategy to cater that?
For achieving this, the company has strategized a capex plan of around Rs.235 crores for the year 2011-2012, after doing an aggressive capex of around Rs.1000 crores last 3-4 years in the cranes. We are also geared to cater nuclear power projects coming in India. However, it will take at least three to four years for the nuclear power projects to actually take off.
Crane rental is advantageous because the responsibility of operation, maintenance, transportation and other administrative formalities like RTO registration and insurance lies with the supplier. The crane operation also requires skilled operators, technicians and engineers for execution as well as crane maintenance. This burden can be passed on to the crane renting company if one prefers to hire a crane from the market instead of outright purchase.
The most important thing is that your capital is not blocked if you rent a crane from the market for your project. In case of outright purchase after completion of the project, there has to be alternate usage of crane otherwise it is not a viable proposition to buy a crane & keep idle till next projects. Many times crane rentals cost in ratio to the project cost are very minuscule (less than 1 per cent); hence it is always advisable to rent a crane rather than to own it. Also for different sector project requires cranes with different capacity & boom length. The rental company can purchase cranes with all combinations and rent out to different sectors as per requirement as and when required.
Inspite of the many advantages of crane rental, why the market for crane rental has not grown to its full potential in India?
There is huge demand for cranes and in recent period quite often the clients face problems like unavailability or long waiting for suitable cranes. Also there is entry barrier like huge capital investment one may need to invest before making their presence in crane rental industry. These factors constraints the crane rental industry from growing as per our expectation. Customers like L&T, Reliance, it is feasible for them to have their own fleet of cranes because of large number of projects in hand. However, cranes rental market is much bigger than outright purchase and is growing rapidly.
Also the government rules and regulations are unfavorable for cranes rental industry for interstate transportation which also makes big impact on entry of new entrants.
To what extent is it true that there is a dearth of skilled man-power in this segment? If that is the case, then how are you addressing this issue?
The academy imparts training for a certified course in crane operation and crane safety. Six months of classroom & onsite training to students by our professional trainers before Trained operators start their actual work at project sites. We also upgrade the junior operators to the higher capacity cranes from their year of harden work site experience in crane operation.
What makes your offerings unique as compared to your competitors?
The Indian cranes rental market has become very competitive. There is stiff competition in the crane rental market, therefore various cranes rental companies are cutting down their rental charges for cranes. We still find that our clients always give preference for organized player like Sanghvi Movers Ltd. especially for high capacity cranes because of advantages like less breakdown, timely deployment of cranes & prompt services.
Clients prefer crane services from Sanghvi Movers Ltd. because many responsibilities like operation, transportation, maintenance or even replacement of cranes can be done smoothly by organized company like us.
Please throw some light on the concept of fleet management.
The company has a fleet of 400 medium to large sized heavy duty Hydraulic and Crawler cranes with capacity ranging from 50 to 800 metric tons. More than 60% of cranes in our fleet are over 100MT capacity & we are concentrating more on requirement of higher capacity cranes.
What is the market size of equipment rental business in India and at what rate is it growing?
The Equipment rental industry in India is still in its nascent stage and primarily in the hands of unorganized players. However, 20-25% of the rental market is dominated by the organized sector and is expected to grow by 15% on CAGR value. India is an ocean of opportunities in the emerging equipment rental segment as compared to international markets. However, the rental penetration as compared to UK, USA and China is low. Out of the $2.3 billion construction equipment sold, India accounts for a mere 7% equipment that is sold to rental companies, which in comparison to the global average of 50 is quite low. Quippo Construction Equipment Ltd (under the brand name of QUIPPO), a major player in the equipment rental business expects good growth through the expansion of its operational reach and strategic partnerships.
Rental penetration is growing and looks to grow at good pace. What factors are boosting this growth?
Himadri Sankar BhattacharjyaWhat are the benefits of hiring equipment on rent vis-à-vis purchasing it? Please elaborate.
Procurement and management of the Infrastructure equipment requires unstinted concentration which obviously is not the core competence area of the Construction industry, which in turn we actually specialize in. The advantage of this proposition is immense. Construction companies save immensely in CAPEX for their core business areas. Apart from repair, maintenance and storage, the liability of manpower resources engaged for fleet management can be shifted to the rental partners. A prime concern on interstate movement of equipment with its complexities of taxations and cost implication is also taken over by rental companies. Much of these bottlenecks get smoothened where companies like us with the PAN India presence comes to their support even in remotest of locations. The construction companies can also remain unaffected from the factors like machine obsolescence, loss in disposal or deprecation.
What are the hindrances and challenges faced by rental companies in India?
Living with challenges has always been a reality for the rental industry. The rental industry is yet to receive the due recognition from the construction fraternity. This renders a challenge for us as payments for the rental get the least priority especially during the tight money market and monsoons. To add to this, multiple tax structure applicable for interstate equipment movement is a concern for organizations like us with a PAN India presence. In a scenario where rental rates rarely show an upward movement, the escalation of maintenance & manpower cost put operations and profitability under tremendous pressure. In spite of the low customer satisfaction, the small unorganized players sometimes tend to unstable the market dynamics.
To what extent is it true that there is a dearth of skilled man-power in this segment? If that is the case, then how are you addressing this issue?
Quippo Construction is reckoned for its high service level which includes trained operators and dedicated service support even at remotest of locations. Where scarcity of trained manpower is an established reality, QUIPPO has developed its own answer to this ever challenging situation. Continuous training and skill upgradation, fair treatment, valuing long-term relationship has helped us in gradually building up a comprehensive crew databank.
What makes your offerings unique as compared to your competitors?
Quippo Construction, a subsidiary of Srei Group, has built its reputation over the last 10 years in the construction arena for its remarkable service achievements. We have approximately 450 equipment across the country. With our PAN India presence, we are the only infrastructure equipment bank having a wide range of equipment, catering to both construction as well as industrial applications. We have 7 equipment hubs with 28 spokes, spread along the length and breadth of the country and are further supported by the offices in the major business cities. The company draws its strength from factors like – well trained crew, in house inventory of spares for the day to day maintenance, well developed infrastructure to provide in house repair and maintenance and dedicated team of qualified service engineers and mechanics.
Please throw some light on the concept of fleet management.
QUIPPO, the pioneer in the organized equipment rental business, has over a period of time developed in-depth expertise in fleet management through its exposure in varied terrains, sectors and equipment. With this inherent capability, QUIPPO has pioneered the unique concept of fleet management solution for repossessed fleet of the Banks/ NBFC’s on a PAN India basis. The services include:
- Inspection / Cleaning of the equipment immediately upon arrival
- Regular Maintenance and upkeep of the equipment.
- Yard Maintenance
- Assessing equipment for the Repair/Face-uplifting and providing the same to the customer
- Repairing upon customer’s approval
- Providing 24X7 Security to the parked machines
- Maintaining adequate reports and documents as desired by the customer
Ashwin GandhiRental penetration is growing and looks to grow at good pace. What factors are boosting this growth?
The rental penetration is definitely growing at a good pace and the main factor for boosting the growth is that the industries do not desire to block their capital in such equipment as they become a liability once the project is completed & commissioned, high capacity cranes are not required for their activities. Such industries require the cranes again after 3–5 years of completion of their projects for short periods for maintenance and repairs jobs, and to meet these requirements, they prefer to hire the required cranes from rental companies.
The rental companies in India are definitely in the unorganized sector. There are hardly 10 organized players in the field and about five of them are big rental companies. This being a specialized type of renting business, these companies have not gone for addition of other equipment, like construction machinery, road building equipment, tower cranes, etc.
What are the benefits of hiring equipment on rent vis-à-vis purchasing it? Please elaborate.
There are great benefits derived by the industries when they hire cranes for their requirements from rental companies.The main benefits are summarized below:
- As and when required for short or long duration, the cranes are available on hire without investing huge amount in capital expenditure ranging from Rs.2.00 crores to Rs.15.00 crores.
- It is not easy to get trained operators / mechanics for maintenance and stocking of spare parts by the industries for one crane to upto five cranes of different capacity / size / type. Therefore, they rely on the rental companies, who have vast experience in maintenance of such equipment and have trained manpower with them.
- If a crane goes under breakdown, the company has to depend on the operator only, who is supposed to be a skilled person. The crane operator can also report sick, being a permanent employee of a company, and then the crane remains to be idle or work on the whims of one person whereas in case of rental companies, such a situation does not arise since they do have sufficient manpower.
- The expenditure to be incurred by the industries for payment of hiring charges for any duration is treated as a revenue expenditure and 100% allowed by the Income Tax Department as also any service tax amount paid is permitted to be adjusted.
There are certain hindrances and challenges faced by the rental companies in India, few in fact which are explained below:
- Rental company has to depend on transporters, for movement of cranes on trailers, from one site to another.
- While crossing various borders from one state to another, different documents are demanded for payment of entry tax on the value of the crane. RTO tax also differs from state to state.
- Detention of cranes and trailers (carrying dismantled parts / accessories of cranes) at the check posts / borders are the biggest nuisance and hindrance since the check post personnel are aware of the losses that will be suffered by the rental companies, if the cranes/trailers are detained for long and thus their demands are to be met with by the rental companies under duress so as to cross the border(s)/checkpost (s) to reach the next work site in time.
- Restrictions for movement of heavy cranes on various National Highways & State Highways, bridges and culverts, also increase the time of travel and cost of transportation for mobilizing cranes from one site to another.
- All the cranes are required to be operated by experienced operators/helpers.In some cases, inexperienced operators/helpers are engaged at sites which is not known to the owner or the hirer and thus the entire responsibility lie on the rental companies. Such operators are to be trusted by the rental companies and hand over the charge of the high value cranes/equipment.
- Once the crane is at a project site, given to a particular user only, but such a crane is sometimes rehired either by the sub-contractor or by the operator at site against small cash amounts received by them, which is not known to the hirer/rental company.However, to control such misuse, various GPS systems are now available for large reputed hiring companies, which can keep control of time of equipment use or log, including the diesel consumption thereon.
If someone wishes to diversify into rental business, simple investment in crane by taking a term loan or from self-generation of funds in a company is not sufficient since it calls for entire back-up of services for maintenance, marketing, sales, and regular follow-up for payment, both from the user company as well as payment to be made to various government agencies. It is not easy for a new-comer without any background or experience to invest into rental business.
To what extent is it true that there is a dearth of skilled man-power in this segment? If that is the case, then how are you addressing this issue?
All the rental companies are facing tremendous hardships to get skilled manpower at all levels, such as operators, mechanics, hydraulic engineers, electronics and electrical engineers and skilled supervisors since very few persons are available in the market. Further, personnel in each of these categories, has to travel long distances and stay away from the base area, which itself is a challenge.
What makes your offerings unique as compared to your competitors?
In India, all the mobile and crawler cranes are always given on hire with experienced operator for its maintenance, which is called ‘wet hiring’ (these are never given on ‘dry hire’ as in other countries like US, Germany & Japan).
EXPRESS Group is in the business of hiring or rental business of mobile/crawler cranes and forklifts for the past 35 years. Owners have the background of engineering in mechanical and automobile fields and being a family managed business for generations, new technology is being introduced into the business, thus reducing the downtime and operating costs.
EXPRESS Group of companies has been awarded recently “Chitralekha FMB Award 2012” [“Family Management Business Award” in the Category of “Successfully inducted new generation into the family business” presented by the Director (FMB), SPJIMR, Mumbai.
Please throw some light on the concept of fleet management.
EXPRESS Group has developed a concept of fleet management for day to day control of cranes/equipment working at various project sites and whenever these equipment are on move from one site to another. Clients are informed promptly about movement/working or expected time of arrival of cranes at their respective sites and completion of the jobs in most professional manner.Engineering sketches/drawings are prepared inhouse and provided to the clients. Technical advice is also given to the clients so as to use the most suitable cranes with alternate methods at lower costs.
