Out of $ 2.3 billion construction equipment sold in India, just seven per cent is sold to rental companies, which is low compared to the global average of 50 per cent; in China, it is approximately 35 per cent, in USA 65 per cent and in Japan, it is 80 per cent. Equipment India seeks and finds the growth potential and the major challenges that blunts the growth of the industry.

The Indian rental industry is highly fragmented today with the top ten rental companies accounting for approximately 3,500 units between themselves, representing approximately less than five per cent of the total estimated IE units available for rental. According to KPMG estimates, equipment sales to the Indian IE (infrastructure equipment) rental market could reach $700 million by 2010/2011 and $2 billion by 2015. In terms of turnover, the Indian IE rental market is presently estimated to be in the range of $400-$500 million dollars and is growing at an estimated CAGR exceeding 40 per cent. Typically, in developed markets, rentals are the dominant channel for IE sales. However, in India, rental penetration in the IE industry started at a low of two per cent in 2004 (KPMG and Dan Kaplan estimates), and is presently expected to be in the range of 20 per cent.

Rental companies worldwide use a term called 'rental penetration' which is a value of the total equipment sold to rental companies over the value of total equipment sold in the market. Countries like UK and Japan have a rental penetration of 80 per cent while the USA has a number between 40 to 50 per cent. India had a rental penetration of only two per cent a decade ago and is presently hovering between the 7 to 9 per cent. That itself is clear indication of the high potential of the equipment rental segment.

Rental penetration is expected to grow to 35 per cent of the IE market by 2014/ 2015 primarily on account of the following, points out Rajiv Sethi, Managing Director, GEAR. Here is an account of some capital constraints of small and medium- sized sub-contractors, to whom a large amount of work is increasingly being outsourced by large principal contractors:

• The timelines for execution of large infrastructure projects are increasingly becoming constrained, necessitating increased levels of mechanisation. The captive equipment banks of large contractors are unable to meet this increased need of machines, leading to a swing capacity demand for equipment from the rental industry.
• The marginal buyer is increasingly looking to rent rather than buy, especially for projects with duration of less than three years.
• Rental penetration is high in certain specialised and complex equipment types such as cranes rentals where penetration is estimated to be around 60 per cent. Growth in these specialised sub-sectors will increase the average penetration levels for the entire industry.
  

Says GVR Murthy, Joint Managing Director, TIPL, "Equipment rental in India, although is in its infancy, has tremendous potential in the next decade with planned investments and focus in infrastructure construction, industrial development, mining and power projects. It is encouraging to find that certain customers with global experience and exposure are now looking for multiple equipment acquisition options and are prepared to consider equipment on rental as an alternative. These customers are demanding good quality, safe and reliable rental equipment and are not looking for lowest rate. As the customers are seeing value proposition of rental business, the rental industry is bound to grow in near future. The mode of equipment acquisition like in the advanced economies should be based on project type, project tenure, customer's cash flow situation, company capex policy and other strategic needs. The rapid pace of infrastructure constru?ction and industrial development may bring in global leaders and would in turn, trigger a healthy mix of rental, used and new equipment deployment.

According to Sandeep Chichra, Business Head, Era Group, "The constru?ction equipment market will grow at least five-fold from its current size to approxi?mately $12-13 billion by 2015, growing at a 24 per cent CAGR. While the equipment industry will double in five years, constr?uction equipment rental which is one of the emerging growth areas of the Indian construction equipment industry, is expe?cted to triple at 21 per cent in two years' time."

Speaking about the challenges he says, "There are different taxation struct?ures for different states, entry taxes, work permits, way bills, a few of the challenges every rental company faces in India for being a pan-Indian rental company. Additionally, the duty benefits are provided to for main contractors for ultra mega projects/SEZ, national highways, etc, but these benefits are not provided to rental companies whose equipment worked on these projects."

"As the rental industry is still in establishing of equipment mode there are many challenges such as varied RTO regulations in registration and renewals and taxation structure preventing redeployment of equipment across state boundary with ease. However, the rental industry will take up these issues at appropriate levels to facilitate the rental business to grow," says GVR Murthy.

"Rental market accounts for 30-40 per cent of total sale of cranes. Hiring of equipment, especially utility equipment, is growing. However, hiring and rental activity is mainly concentrated in the unorganised sector, with players who are operating with either a fleet of small size pick and carry cranes or with a fleet of used slew cranes. There are only few large companies existing in the crane hiring business which is offering services across the country. These few companies normally do not offer small cranes and specialised in mid to large- sized telescopic slewing and truck cranes hiring. There is a good growth potential in crane hiring business and market is likely to see more and more players coming in at national as well as regional level from the organised sector," says Rajesh Sharma, Vice President - Sales & Marketing, Escorts Construction Equipment.

Given that the number of sectors under the umbrella of infrastructure has been rapidly growing, the equipment rental sector, too, has seen a rapid burst of activity over the last few years. Though there are a few players in this industry who have formed national networks, the bulk of this sector remains unorganised. While there is a very large population of equipment hirers all over the country, it still cannot be termed an industry. This is because the sector is completely dominated by small and marginal players, usually confined to a particular region or geography.

"Hiring of materials handling/lifting equipment is the backbone of Indian construction equipment rentals. India's largest and second-largest equipment rental companies are both primarily crane rental companies. The demand for lifting equipment is always increasing, and there are new entrants coming from Europe and US because of lucrative opportunities available in India. The present crane market is for mainly used cranes, where these 10-25 years old cranes are brought from the second-hand market, and refurbished in India for base operations. There is an urgent need for technology enhancements in the crane market," points out Sandeep Chichra, "Similarly, there is the need for occupational safety for personnel working at heights. Presently, persons are accessing heights with ladders and scaffolding without any safety harnesses. There is the requirement for inducting the uses of aerial work platforms/cherry pickers for accessing heights. These need to be made mandatory for heights above 10 m."

Chichra further explains, "Presently, the construction equipment market in India is approximately $2.3 billion. The equipment rental industry is merely seven per cent of the present CE market. In broader terms, out of $2.3 billion CE sold in India, just seven per cent of construction equipment is sold to rental companies. This seven per cent remains low as compared to global average of 50 per cent; in China, it is approximately 35 per cent, in USA 65 per cent and in Japan it is 80 per cent."

Construction equipment rental activities in India has shown some progress in the last five years although India is still not a mature market for rentals like the West and the overall volume is substantially lower. However, with the current thrust in industrial and infrastructure development and upcoming investments in core sectors, rental is certainly going to be an important solution. Customers will therefore, look for rental as an alternative from equipment rental companies with global rental credentials and local experience ready to meet such challenges. Access to quality construction equipment on rental elimi?nates capital investments, risk of equipment idling, the need for cumbersome mainten?ance, as well as inventory management.

In the international market, rental plays a very important role in any project execution, whereas in India, companies still feel pride in ownership of their equipment. Many prefer to keep the equipment till infinity, instead of what we see in the international market, where companies are selling surplus items at regular intervals through unreserved auctions while the items still have value. The availability of more rental equipment can change fleet management practices. Another reason that Indian companies are reluctant to hire equipment is due to the possible higher costs of rental with all the added tax structures.

"There are a few corporate organisations which have forayed into the organised rental sector, such as GEAR, GMMCO, Quippo and TIL, and their business is growing on account of their equipment management capabilities, short-term equipment requirement for the projects and limited fund availability with contractors. However, it will still take a long time for organised rental to get fully established in India, and until then the rental business will be dominated by individual plant hirers," points out Samir Bansal, General Manager, Off-Highway Research. "The rental market has always been a very important customer segment of the construction equipment, especially for backhoe loaders, compaction equip?ment, mobile cranes and hydraulic excavators. This segment is dominated by individual plant hirers, who generally operate in a small geographic region, have very good knowledge of the needs of the contractors in their area, and provide them with the desired flexibility because of their personal relations. In addition, there are large crane rental companies like, ABG, Crane Hiring and Sanghvi Movers, which operate on an all-India basis. Many plant hirers keep shifting between renting equipment and taking construction con?tracts themselves, and this segment will continue to play a major role in generating demand for construction equipment."

Utilisation is the condition which makes high value equipment economical. So, for construction companies and smaller contractors who cannot fully utilise a boom placer or only need the equipment for a special project within limited time, the rent of a boom placer from a rental company is the economical solution. "Compared to the international rental business, the rental business in India is growing at a snail`s pace and the majority of this business is controlled by the unorganised sector. It is high time that the major players in construction equipment industry took the initiative to develop the rental industry in a professional manner, points out Rajesh Kawoor, Vice President, Sales, Sany Heavy Industry India.

According to Michael Schmid-Linden?mayer, Managing Director, Putzmeister Concrete Machines, "As far as rental companies are concerned, Putzmeister enjoys approximately 90 per cent market share. Pumps used for rentals must be very robust because job site conditions and concrete quality is different at each rental job. The other reason why our machines are the preferred choice of the rental com?panies are the low operation cost. The pumps are normally rented for a fixed amo?unt per month and operation hours. When the operation costs are low, the rental companies will earn maximum profits."

"Rentals today are restricted mostly to transit mixers and to some extent, to concrete pumps. As and when the market matures, rentals will become feasible. Our self-loading mixers are opening up to rental segments in Andhra Pradesh and Chhattisgarh," says K Vijay, Director, Ajax Fiori.

India is emerging as a key international market for equipment rentals. Rental equipment has become one of the leading end-use markets for construction and industrial equipment, and one of the hottest subjects of study. The industry has grown tremendously over the last half-decade. The last few years have witnessed a phase of restructuring in the industry through acquisitions and joint ventures. This reflects the active interest of international majors in the domestic markets. The future prospects of this industry are directly linked to the Indian economy, which is expected to do well in the future.