Heavy Construction Equipment Rental Business is Now Increasing Rapidly
Give it to the increased infrastructure investments and focus on projects like ‘Make in India’ campaign, Smart Cities Program, ‘Housing for All by 2022’ scheme and affordable housing development and Swachh Bharat Program, development of urban and rural roads, rural infrastructure development, rail infrastructure development, airport infrastructure development, power infrastructure development and industrial development, the heavy Construction Equipment (CE) market in the country is growing at a rapid pace. Apart from all the above mentioned projects, there are at least 10 other big infrastructure projects in government’s pipeline including Rs 12 lakh crore Sagarmala project and Rs 14,000 crore Bharatmala Project that needs to be completed and all of which will demand more CE. In fact, even the rental heavy CE market is all smiles looking at this long list of projects lined up.
Although the heavy CE rental business is in its infancy, the trend is picking up very fast in the country. The current rental penetration in India is at around 7 to 8 per cent as compared to the global standards of 50 to 80 per cent. However, the rental equipment sector is expected to show strong growth, possibly higher than 30 per cent annually over the mid-term. Particularly, the rental market is expected to pick up in Tier-2 and Tier-3 cities of the country.
If facts are to be believed then about $2.3 billion Construction Equipment is sold in India and nearly 7 per cent of the equipment is sold to rental companies. Gradually, the CE rental business is becoming more organised in the country and is expected to grow considerably year-on-year in the future. Today, not only the regional players but big manufacturing companies too have started setting up their own equipment rental distribution. One amongst the big names is Mahindra Construction Equipment which provides its Mahindra EarthMaster backhoe loader model on rent. As of now, the key equipment in the rental fleet in India includes backhoe loaders, excavators, motor graders and few more.
Reasons for the increase of heavy CE rental business in the country
CE rental business’ popularity has increased due to a variety of reasons. A few key contributors to the growth of heavy CE rentals include the rising cost of purchasing equipment, increasing economic uncertainty, lack of capital, technology upgradation, unpredictable construction and infrastructure growth, depreciation woes, costly breakdowns and limited space availability which has forced construction companies to find ways to save money wherever they can. In many instances, renting CE has become a viable option for many companies and has provided them the ability to cut costs and run a more financially stable construction business.
We list all the possible reasons in detail which have been leading to the growth of heavy CE rental business in the country...
1. Given that 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 found unable to meet this increased need of machines. Hence, construction companies find it wise to opt for rented equipment in such scenarios.
2. Generally, construction companies are under a lot of pressure to trim capital outlay and hence it is better for them to rent the equipment on a monthly or hourly basis. It goes without saying that at a time when it is not uncommon for particular projects to place excessive demand on the resources that exceed routine operations, rented CE serve as a cost-effective solution to supplement the capacity on an as-needed basis.
3. Rented CE leads to reduction in investments on part of construction companies as there is no need to invest a huge sum in purchasing the new equipment and outsourcing the equipment requirement (including spares and services).
4. Rented CE also helps the construction companies from market fluctuations. Given that the construction sector is highly dynamic and many things may influence the market, the rising or sinking cost of the equipment can highly affect the business. In such scenarios, rented CE can provide the necessary cushion to the construction companies from the unforeseen financial downturns that may arise due to multiple reasons.
5. It is generally seen that taking CE on rent is a better option rather than buying, especially for projects with duration of less than three years.
6. Many times, short-term projects or one-off jobs need specialised equipment. For these projects, taking CE on rent is definitely a smart option.
7. Rented CE helps in reducing the maintenance and the repair costs. By opting for CE on rent, construction companies may not have to worry about the expensive breakdowns at all as most of the times, this is taken care of by the rental company. This can also free up their considerable amount of time, labour and cost required for maintenance.
8. Rented CE leads to huge savings on manpower and administrative cost too as there is no need for mechanics or staff which is generally provided by the rental company.
9. Last but not the least, with new technologies constantly outdating the old machines, the old equipment can become obsolete easily and its value may also depreciate very fast. However, rented heavy CE can put an end to all the depreciation woes because it is the rental company that assumes the risk of the asset completely and it’s drastically losing value.
All the above mentioned reasons are enough to prove that why the heavy CE rental business is growing rapidly in the country. However, it is necessary to mention here that despite the various growth opportunities, the heavy CE rental business in the country is facing various challenges like non-availability of new machines on the rent, rentals mostly restricted to low to medium value and general purpose equipment, less availability of technologically-advanced equipment on rent and current rental players having a limited service offering. However, with continued infrastructure developments, the heavy rental CE industry is definitely expected to see a major boom in the coming days.