CERA's - Transformative Measures for Rental Industry

Satin Sachdeva, Founder, CERA
Though the Indian equipment rental market has grown from 10% to the current 20% in the last few years, the rental companies continue to face challenges of low rental rates and delayed payments. Satin Sachdeva, Founder, CERA, shares his views on the prevailing scenario and what can be done to create a win-win situation both for the rental companies and the hirers.

What is the current scenario of the Construction Equipment Rental Industry?
It is true that the equipment rental market has grown by more than 15% in recent years, especially so after the formation of CERA (Construction Equipment Rental Association). However, rental companies continue to face challenges due to sluggish rates and delayed payment issues.

Demand in the Equipment Rental market is presently low in a few product categories, but the rental supply is high in road construction equipment. This has impacted their sales. ICEMA report also indicates that road construction equipment sales are down by a whopping 38% due to reasons like oversupply in the market and competition amongst rental companies.

However, many contractors are now purchasing their own machines because banks are providing easy and quick finance. So, it’s very easy to buy a machine upfront; but many of these contractors are not calculating and evaluating in terms of owning an equipment versus renting it. There are many expenses that they should calculate before purchasing a machine as there is the cost of depreciation, the cost of inflation, operation, maintenance, storage etc.

What measures is CERA taking to address the issue of delayed payments, bad debt, etc?
Rental construction companies are suffering from working capital and cash flow issues due to late recoveries and bad debt in the market. There are payment delays of 3-4 months, which, unfortunately, has now become a standard practice. The industry is also reeling under the pressure of low rental rates.

In view of all these setbacks, CERA India convened a special session on 19 Aug 2022 at Hotel Pride Plaza in Aerocity, Delhi. The aim was to discuss and understand the factors affecting the rental industry. However, many more deliberations are needed to counter these issues, especially of the low rental prices and delayed payments.

CERA has already created dedicated panels for addressing the issues of recovery and delayed payments and is in constant discussions with government councils like Assocham, PHD Council, FICCI, and CIDC and some legal entities to resolve the issue of bad debt, which is hampering the growth of Indian rental companies.

Along with many other associations, CERA participated at the launch of Construction Industry Arbitration – an online international conference on “Institutional Arbitration – a Boon for Dispute Resolution”, which was held on 19 and 20 September 2022.

CERA has undertaken many other initiatives to resolve the issues. We feel that all the primary stakeholders like the Rental Industry, the OEMs, Construction Companies, and the Financers should collaborate in finding a balance and in also maintaining a proper supply chain.

Please elaborate on the supply and demand trend of different product categories.
Rental demand trend of different product categories will vary from time to time as the rental business is led by the contractors and how they plan to meet the requirements of their projects. Presently, most of the equipment are deployed for use in constructing elevated roads, and in the bullet train and metro projects. Cranes, piling rigs, and boom placers are high in demand.

Road construction equipment and earthmoving equipment sales are presently down by more than 30%, which is certainly a matter of concern. Equipment oversupply in the market is another concern because of easy finance availability due to which contractors are overleveraging their resources which has created an imbalance amongst rental players and contractors. Overleveraging is also responsible for recent defaults and NPAs in the market. Working capital is also majorly disturbed due to the same.

How can CERA help rental companies leverage technology and digitalization so that they become more organized and efficient?
Rental companies comprise a major share of the total equipment sales. In recent years, many have started buying new equipment and adopting digitalized processes and operations. This is because the construction industry is witnessing a major shift in technological advancements. Now, many IoT based devices and GPS-enabled sensors are coming as standard in the equipment. Even the OEMs are making contractors and rental companies aware of the technology advancements and features in their products.

CERA organizes many conferences and exhibitions on the shifting trends in technology, and on the features of new and upgraded products so that contractors and rental companies become more aware of market demand and adopt the new technologies and products.

Awareness of the benefits of digitization and standardizing processes and operations will help rental companies become better organized. In fact, many rental firms are now keen to offer equipment which have integrated new technology and digitalization to enhance productivity and finish projects within the stipulated timelines, and thereby earn good profits and build a strong reputation in the market.

The rental industry can become more organized by using ERP, CRM, and other IT features which will ease operations. The rental companies should also follow standardized processes, adopt global best practices and technology advancements, and build good business relations with all the stakeholders in the ecosystem.

With some OEMs setting up a rental wing as well, how will this impact the business of rental companies?
Ideally, OEMs should sell equipment to equipment rental companies with the support of financers. Rental companies then provide the equipment to construction companies either on lease or on rent. This business model would help maintain the crucial balance in the demand and supply of equipment, and also enable the rental industry to strengthen and enhance its capacity.

Manufacturers should focus on product sales and after-sales services rather than entering the rental business by setting up a rental vertical. They should work in harmony with the rental companies as they are a major buyer and an important stakeholder in the Construction Equipment Industry.

More than 60% machines are sold to rental companies in India, which is quite encouraging, so manufacturers should complement and support the rental companies. It’s almost next to impossible for rental companies to compete with a manufacturer’s rental wing as the latter would be better equipped with a stronger infrastructure in place, and a well-established presence in the market. CERA members and associates are of the opinion that they need to deliberate on this matter urgently in order to dissuade OEMs from entering the rental business – either directly or indirectly.

Renting versus Buying: What are the pros and cons?
Deliberations over renting vs buying equipment have been taking place for quite some time now, which shows that the rental industry is steadily growing and has a good future. The benefits of renting experienced by construction companies and contractors is increasing rental penetration significantly.

The number of ongoing and upcoming construction projects is on the rise and labour costs are continuing to increase. Renting equipment instead of buying a new machine is a good way for construction firms, builders, and sub-contractors to reduce overhead costs. In fact, rental has become a more attractive option for business owners and individuals looking to complete projects.

Renting offers additional benefits like service and maintenance costs, as the costs are absorbed by the rental companies, plus they tend to use the latest machines with high-end technology. This means that the rented equipment is more reliable, and more productive, and is also well maintained by the rental provider. Other costs involved in buying include the cost of maintenance, storage and logistics.

With the rising inflation and machines becoming more and more expensive, it is more economical for a contractor to take a machine on rent rather than buy one and block his capital. A rented machine is also a better option for a short-term project as the contractor can return it once the project is completed, instead of adding a new purchase to his fleet and keeping it idle if there is no other project where it can be put to immediate use.

How has CERA grown in stature as an association representing the rental industry, and how effective has it become in voicing the concerns of its member companies and finding the desired solutions?
The equipment rental industry in India is progressing fast. It has grown to over 20 percent in last four years (from the 7-8 percent in 2017) at the time of inception of the Construction Equipment Rental Association (CERA). It is now aiming at maximum penetration of the rental concept in the next two years.

CERA’s objective is to transform the rental industry into an organized sector and promote the rental concept through seminars, talk shows, and conferences. Our goals have proved to be a game changer. We have focused on two things, viz. standardization and building relationship with all the stakeholders.

Recently, the Global Rental Alliance (GRA) acknowledged the significant role played by CERA and inducted CERA as its new member. GRA is a global networking organization for equipment rental associations. CERA is promoting the concept of rentals globally, working closely with OEMs, rental companies, financiers, industries, government bodies, and infrastructure companies on various policy issues. CERA is also promoting skilling of operators and other manpower for which it has partnered with several skilling organizations and councils.
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