Mechanical report dicembre_2006


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Mechanical report dicembre_2006

  1. 1. This reeport has been carryed out by the Indo Italian Chamber of Commerce & Industry in Mumbay (India) on november 2006 within the Project“Friuli Venezia Giulia – India: Imprese e Conoscenza” realized by: REPORT ON MECHANICAL INDUSTRY IN INDIA
  3. 3. EXECUTIVE SUMMARYThe idea of India is gradually changing as number of countries showing interest to investin India is increasing. According to an AT Kearney’s FDI Confidence index, India hasdisplaced the US as the second most favored destination in the world after China. Indiaattracted FDI at US$7.96 billion during the first half of FY06, as against US$2.38 billionduring the same period in FY05, more than 3 times growth. India’s economy is predictedto be growing over 8% in 2006 and with a billion plus population India has its wings ofvaried culture and business/industry scenario across the country. At the backdrop of suchcharacteristics prospective investors in any foreign countries will be interested to know‘Doing business in India in engineering industry’. The study aimed at highlightingmacro-economic indicators of the country with its risk analysis in terms of currency, non-collection of goods and non-payment. It also discusses obstacles that the prospectiveinvestors may face and appropriate marketing strategies that they should adopt to ensuresmooth landing in the country which requires a good understanding of its geographiesand associated culture and business environment, least but not the last the marketdynamics. While engineering industry in India follows specific classifications ofindustries and its associated sub-sectors, industry sectors with their sub-sectors discussedhere are not exactly according to classification followed in India. As a result some of theindustry sub-sectors could not be discussed with adequate data/information. Approachtaken for this study was to collect information/data from various authentic sources likeindustry associations, trade agencies and respective ministries wherever applicable. Asfar as policy/regulations are concerned respective ministries’ reports and guidelines havebeen referred and an attempt has been made to explain them appropriately as relevantthey may be. Salient points which are key findings in this report are given below. Challenges in the market is still to find the right partner, knowledgeable about local market and procedural issues for foreign industries investment in India and can formulate the right strategies with solid foundation for setting up manufacturing base as JVs as the FDI policy may stipulate in respective sectors Tariffs (although tariff structure has been reduced considerably since economic reforms but issues still remain in some specific sectors) and poor infrastructure still pose a serious challenge to FDI In addition, heavily bureaucratic investment processes, poor IPR enforcement, government inefficiency, and corruption have also discouraged foreign investors Winning strategy overcoming the market entry barriers for setting up an establishment- a solid regional plan analyzing the local market demand and economics that work out to be feasible in producing in India and exporting to other countries in the world leveraging conducive economic factors that otherwise become an impediment in future growth. For example what auto majors are doing in India is the right winning strategy to move up in the business plan.
  4. 4. While marketing products distribution strategy can really make the difference;however merit has to be given after due diligence is done and a meticulous planshould be in place. Small distributors can really make a drastic improvement insales growth where flexible marketing strategies play an important role A joint venture company is generally formed under the Indian Companies Act of1956 and is jointly owned by an Indian company and a foreign company. Thistype of arrangement is quite common because India encourages foreigncollaborations to facilitate capital investments, import of capital goods andtransfer of technology.All industrial undertakings are exempt from obtaining an industrial license tomanufacture, except for (i) industries reserved for the Public Sector, (ii) industriesretained under compulsory licensing, (iii) items of manufacture reserved for thesmall scale sector and (iv) if the proposal attracts location restrictionBeing a buyer’s market from seller’s market promotion of products matters much.The key to gaining rural market share is increased brand awareness,complemented by a wide distribution network. Rural markets are best covered bymass media - India’s vast geographical expanse and poor infrastructure poseserious challenge for communication and hence emphasis must be given incommunication problems to be really effective in selling to rural market which isopening up widely for some sectors like consumer electronics and homeappliances.India is still not holding its laws high for protecting copyright issues. As a resultcases of counterfeiting and violation of copyright act happens and probablyjudicial system is still not being able to curb the menace. Adjudication of cases isextremely slow.Logistics play an important role in distributing products to all corners of thecountry. Due to its vast territory challenges in implementing a smooth supplychain model is really challenging and hence outsourcing to third parties is verycommon and an useful and effective strategy to reach market place just in time.The study reveals some of the sectors with its end user sub-sectors as very muchpotential in terms of opportunities for foreign investors and they are: Automotivecomponents (including high precision machine tools and fasteners), foodprocessing machinery like cold chain as the retail industry is booming,commercial refrigeration, optical instruments and precision laboratory measuringequipments, lamps and related illumination parts, aeronautical industry (JVs withIndian airline companies for aircraft maintenance) and special purpose machines
  6. 6. 1. SECTOR ANALYSISSector 1: Mechanical Components Definition: A mechanical component is a part/sub-system used in the assembly of mechanical systems/products. Type of Products: Components such as fan guards, heat sinks, clips, hinges, castors, shielding, stamping, card guides, injection mouldings, extrusions, brackets and general parts for electro-mechanical systems belong to this industry segment. Use: Mechanical components find wide usage in numerous industries ranging from agricultural industry to aero-space industry. These products are largely used as inputs to the capital goods industry. Hence, the demand for this sector depends on the demand for the capital goods industry. Overview Classification: For the purpose of this study, mechanical components are classified as given below, suggested by Indo-Italian Chamber of Commerce and Industry (IICI). However, the industry classification is not rigid as there may be overlapping of segments. Classification of Mechanical Components • Mechanical parts and sets (metal manufacturing on iron and non-iron alloys, stainless steel and aluminium) • Various mechanical components • Precision components • Connectors, pistons, special screws • Special equipment Industry Size & Trends The table given below presents industry size and trends by sub-segments Industry Size & Trends Sub-segment Market size (Rs bn) Market size (Rs bn) Growth over FY FY 2006 FY 2005 2005 Mechanical parts and 107.45 81.61 31.67 sets Mechanical 9.03 8.26 9.3
  7. 7. components production Precision components 8.7 7.08 22.8 Connectors, pistons, 444 338.52 31.16 special screws Special equipment 58.3 53.00 10 Total 627.48 488.47 28.46 Source: Estimate by Cygnus ResearchSub sector: Mechanical parts and sets (metal manufacturing of iron and non-ironalloys, stainless steel and aluminium)Mechanical parts and sets segment consists of Castings and Forging Industry andSeamless Steel Pipes & Tubes. Indian Castings and Forging Industry Type of Products This sector includes low-tech items like castings and forgings. Use of the Products Casting products constitute essential intermediates for automobiles, industrial machinery, power plants, chemical, fertiliser plants and other engineering applications. Overview Since end of 2002, the industry picked up momentum as steel industries gradually was moving up. In 2004-05, production increased by 26.9% from 732 thousand tonnes to 929 thousand tonnes, while exports increased by 24% from US$250m to US$310m. Capacity utilisation also improved considerably from 40-50% in previous years to 85% of the additional capacity added during the last two years (1.5m approx) inclusive of overseas acquisitions. This was largely due to the revival in demand from the automotive sector and particularly the passenger car segment, which recorded an excellent performance in both domestic market and exports. Indian Castings and Forging Industry Production & Export Trend: 2003-06 2003-04 2004-05 2005-06 2006 over 2005 % Change Production (‘000 tonnes) 600 732 929 26.9 Export (US$m) 178 250 310 24.0 Source: In the year 2005-06, six major companies—Ahmednagar Forgings Limited, Amforge Industries Limited, Bharat Forge Limited, Electrosteel Castings Limited, Mahindra Forgings Limited and Shree Ganesh Forgings Limited—recorded estimated sales of Rs36.95 billion, up by 26.52% over the previous year.
  8. 8. Major MarketsThe industry’s major export markets are the US, Europe and China. However, only30-35 manufacturing units are directly engaged in exports at present.OutlookThe future looks encouraging for castings and forgings industry in terms of theexpected surge in global demand. In 2006-07, production is expected to touch 1180thousand tonnes while exports are expected to touch US$388 m. As a result ofliberalisation, more MNCs have entered the domestic automobile market. This hasopened up more business opportunities for castings and forging industry.Seamless Steel Pipes & TubesType of ProductsThis sector includes steel pipes and tubes (including stainless steel).Use of the ProductsIn oil sector, seamless steel pipes and tubes are extensively used as line pipe, casingpipe, production tubing, drill pipe etc. In non-oil sector, these are used in a number ofimportant industries like power equipment, automobiles, chemical plants, fertilisers,petrochemicals and industrial machinery.OverviewThe size of Indian seamless tube market is around 0.5m tonnes. In India, there are sixmanufacturers of seamless steel pipes and tubes. ISMT Limited, one of the majorcompanies is the largest integrated manufacturer of specialised seamless tubes in theAsia-Pacific region. The industry is able to manufacture tubes up to 245mm OD andis, by and large, meeting complete requirement of bearing and high-pressure boilerindustries. With the expected substantial growth in the power and automobile sectorsin the future, the demand pattern may change in favour of these two sectors. In the oilsector, three units have got American Petroleum Institutes (API) certification formanufacture of line and casing pipes. Oil sector accounts for around 60% of totalrequirement of seamless steel pipes. Bearings, automobile and boiler sector contributearound 30% demand.Welded Steel Pipes & TubesWelded steel pipes and tubes consist of a wide variety of pipes and tubes like lineprecision pipes, tubular poles, Hamilton poles, API pipes, electric poles and light-weight galvanised pipes for sprinkler irrigation. At present, there are about 123 unitsengaged in the manufacture of welded steel pipes and tubes in the organised sector.
  9. 9. India’s manufacturing capacity of these types of pipes and tubes are adequate. The capacity utilisation for the manufacturing of welded pipes has improved substantially. Three-layer, polyethylene-coated pipes used in the oil sector are also being manufactured in the country. Stainless Steel Welded Pipes & Tubes Stainless steel pipes find application in petrochemical, fertiliser, power and nuclear plants along with other corrosion-resistant applications. Mother pipes are being manufactured by only two units and other units are engaged in the manufacture of cold drawn seamless pipes and welded stainless steel pipes. Adequate domestic capacity is available to meet the requirement of the industry in general. However, a large part of supply to industries is from unorganised market as well. Major Markets The industry’s major export markets are the US, Europe and Far East.Sub sector: Mechanical Component Type of Products This sector includes components / machine tools produced using non-NC machines. Use of the Products These are used as inputs in capital goods industry. Overview The following table gives the performance of the segment for the last three years ending March 30, 2006. Non-NC Mechanical Component Production Trend: 2003-06 2006 over 2005 % Production 2003-04 2004-05 2005-06 Change Quantity (numbers) 5,047 3,406 3,370 -1.06 Value (Rs m) 5,508.161 7,270.524 8,723.95 19.99 Source: Indian Machine Tools Mfrs. Association( In 2005-06, Non-NC Mechanical Component output was worth Rs8723.95m, up by 19.99%. Though production in 2005-06 was little lower than 2004-05 but price realisation was little more due to increase in steel pricess.
  10. 10. Sub sector: Precision Components & Equipment Type of Products This sector includes components / machine tools produced using NC machines. Use of the Products These products are used as inputs in capital goods industry. Overview This segment is growing rapidly due to growth in automobile sector along with its component manufacturing facilities. Trend in the NC mechanical component production during 2003-06 is givfen in the following table. NC Mechanical Component Production Trend: 2003-06 2006 over 2005 % Production 2003-04 2004-05 2005-06 Change Quantity (numbers) 2880 3755 4432 18.03 Value (Rs m) 5533.37 7971.67 9364.89 17.48 Source: In 2005-06, NC mechanical component output was worth Rs. 4432 m, up by 17.48% over 2004-05.Sub sector: Connectors, Pistons, Special Screws (Auto Components other thanelectrical parts and other components) Type of Products This sector includes fasteners (nuts, bolts, and screws), bearings and other auto components like pistons (including industrial pistons). Use of the Products These products are used as inputs in capital goods industry. Overview Fasteners are broadly divided according to consumer segments—automobile sector and industrial sector. Industrial fasteners are used in varied applications like construction, railways and manufacturing sector. Total demand for fasteners is almost
  11. 11. equally divided between automotive and industrial sectors. Thus, automobile sector isthe largest end-user segment for fasteners.Industrial FastenersFasteners include production of nuts, bolts and screws. They are made from coldheating steel and carbon steel. A significant quantity of raw materials has beenimported; however, the contribution of imports has been decreasing during the pastfew years.Market size and segmentation: Total market size of the fastener industry is estimatedat around Rs15 billion in revenues. Fasteners market can be classified into mild steel(MS) and high tensile (HT) fasteners. MS fasteners constitute about 30% of themarket size and are mainly produced by the unorganised sector, while HT fastenersare produced primarily by the organised sector. HT fasteners are further classifiedinto standard fastener and specialised fastener segments. Specialised fasteners aremostly customised according to the requirements. There are a few thousand types offasteners owing to the lack of standardisation in the industry. Different automobilecompanies have divergent specifications while industrial fasteners have numerousapplications and requirements. It leads to a greater contribution from the unorganisedindustry. It is estimated that the unorganised sector contributes to about half of thefastener market size.Industrial BearingsBearings are used to minimise friction between moving parts and find application inrotating parts of virtually all machines and automobiles. Bearings are produced invarious sizes and shapes with the smallest bearing weighing only a few grams to thelargest one weighing a few tonnes.Automobile sector is the major demand driver for the bearing industry and constitutesalmost 50% of the total demand in value terms. The demand from the automobilesector is almost equally divided between OEM demand and replacement demand.Market Size and Segmentation: The total size of the bearings market by revenues isestimated in the range of Rs25-30 billion. The bearings industry consists of bimetalbearings and anti-friction bearings. The anti-friction bearings comprise Rs15-20billion of the bearings market and bimetal bearings comprise the rest of the market.The anti-friction bearings can be further divided into ball bearings and other types ofbearings like roller, needle, taper and cylindrical. The ball bearings segment is thebiggest segment of the industry and comprises approximately half of the total marketsize in volume terms.Imports comprise approximately 25-30% of the total market. Imported bearings aremostly of large dimensions and are not produced in the country due to relatively lowdemand for the specialised segments.
  12. 12. Auto component industrySurge in automobile industry since the nineties has led to robust growth of the autocomponent sector in the country. Responding to emerging scenario, Indian autocomponent sector has shown great advances in recent years in terms of growth,spread, absorption of newer technologies and flexibility, despite multiplicity oftechnology platforms and low volumes. India’s reasonably-priced skilled workforce,large population of technology workers coupled with strengths gained by the countryin IT and electronics all build up an environment for significant leap in componentindustry. The Indian auto component sector is being seen as the next industry that hasthe potential to become globally competitive, after software.Indian auto component industry, with a turnover of Rs365.40 billion in the year 2004-05 and manufacturing all the key components required for vehicle manufacturing, isan important sector of the automotive industry. The Phased Manufacturing Policy(PMP) followed in the 1980s enabled the component industry to induct newtechnologies, new products and a much higher level of quality in their operations thatenabled quick and effective localisation of the component base. Over the years, theindustry has played a key role in the growth and development of the country’sautomotive industry.After a lull following global economic slump, auto component industry’s growth ratebounced back to 38% in 2002-03. However, the industry could not sustain such a highgrowth rate and could achieve a growth rate of only 24% in 2003-04 and 16% in2004-05. Indian auto component industry has seen major growth with the arrival ofglobal vehicle manufacturers from Japan, Korea, the US and Europe. Due todiversities in the technological profiles of these OEMs, the sector today produceslarge variety of components. Today, India is emerging as one of the key autocomponent centres in Asia and is expected to play a significant role in the globalautomotive supply chain in the near future. Auto component industry Indicators: 2002-05 2002-03 2003-04 2004-05 Output* 245 306.4 365.4 Exports* 38 46.2 62.37 Employment^ 500,000 500,000 500,000 *Rs bn ^persons Source:ACMA
  13. 13. Sub sector: Special Equipment & Machines Type of Products This sector includes, process control instruments, analytical instruments, electrical test and measuring instruments, survey and geo-scientific instruments and medical instruments. Use of the Products Process control instruments, analytical instruments, and electrical test and measuring instruments are used for measuring and controlling temperature, pressure, strain, force, flow and level of fluids, pH and conductivity. Survey and geo-scientific instrument products are used for surveying and measuring geological variables. Medical instruments include instruments such as blood pressure monitors, digital thermometers, Nebulisers, TENS machines and body fat monitors. Overview According to estimates by Industry Chambers, at present, the total cost of production of instrumentation related products in India is around Rs50 billion per annum. Sector- wise breakup is shown in the Table. The growth rate is 10-15% per annum. This production is about 15% of the total demand; the rest is met by imports. Except for a handful of them, all companies are operating in low-end products. Cost of annual production of instrumentation related products in India (Rs M) :2003-06 2004-05 2005-06 % 2003-06 2003-04 Change CAGR 2005 Over 2004 Process Control Instruments 3337.39 3358.39 3740.52 11.38 5.87 Analytical Instruments 9108.90 9921.80 11104.90 11.92 10.41 Electrical Test & Measuring Instruments 23163.83 24055.13 27397.70 13.90 8.76 Survey & Geo-Scientific Instruments 1831.95 1843.45 4305.60 133.56 53.31 Medical Instruments 5952.57 6901.14 7508.00 8.79 12.31 Total 43394.64 46079.91 54056.72 17.31 11.61 Source: Indiastat, Cygnus ResearchProcess Control InstrumentsThere are about 26 units in manufacturing process control instruments and systems in theorganised sector, out of which seven units are capable of taking up complete turnkeyprojects for the entire instrumentation system, including software required by process
  14. 14. industries. The industry is in a position to meet approximately 62% of the country’sdemand.Analytical InstrumentsThe market for analytical instruments solutions in India is estimated to the tune of overRs11.00 billion, comprising various institutions related to laboratories, pharmaceuticaland biotech sector, clinical research, environmental, metallurgy, universities,petrochemicals and nuclear research. The market in India grew at around 12% in 2005-06.Considering the emerging clinical research segment in India; the growth of industries inthe areas of pharmaceutical, biotech and petrochemical sectors; and demand forenvironment-related solutions, this growth is likely to become a minimum 15-20% in thecoming yearsThe domestic manufacturers account for only 10% while the rest is met by imports.Eyeing the potential, many leading players have already integrated India as part of theirglobal agenda and all the top ten leading global companies have set up offices in India.While most of these companies were operating through distributors until a few years ago,now most have own subsidiaries to run Indian business. This includes companies likeThermo, Fisher, Waters, Agilent, Sartorius, Shimadsu and niche players like Dionex(liquid chromatography). Inability of the Indian manufacturers to invest heavily in high-end technologies and in R&D is the reason why most of the Indian manufacturers arekeeping a low profile, note industry sources.Electrical Test & Measuring InstrumentsThe market for Electrical Test & Measuring Instruments in India is estimated to the tuneof over Rs27.4 billion. The market in India grew at around 13.9% in 2005-06. The marketis expected to grow at around 15% for the next few years. Domestic manufacturersaccount for 30% while the rest is met by imports. In the coming years domesticmanufacturers are expected to increase their market share.Survey & Geo-Scientific InstrumentsThe market for Survey & Geo-Scientific Instruments in India is estimated to the tune ofover Rs4.31 billion. The market in India grew at around 133.56% in 2005-06. The marketis expected to grow at around 20% for the next few years. Domestic manufacturersaccount for 9% while the rest is met by imports. In the coming years domesticmanufacturers are expected to increase their market share.Medical & Surgical EquipmentThe market for Medical & Surgical Equipment in India is estimated to the tune of overRs7.51 billion. The market in India grew at around 8.79% in 2005-06. Indigenousmanufacturers are currently in a position to manufacture a wide variety of electro-medicalequipments such as electro-cardiograph (ECG machine), X-rays scanner, CT scanner,
  15. 15. short-wave physiotherapy unit, electro-surgical units and blood chemistry analyzers. Theindigenous industry is capable of fulfilling about 35% of the demand and the rest is metby imports.End-user sub-sectorsHydraulic MachineryThe Indian hydraulic industry had its beginning in the sixties and the main objectivebehind establishing this industry was to provide substitutes for imported machinery.Hydraulic machinery from a long time is used in heavy engineering industries(extensively like shipping, power driven machine tools, automobiles, etc.).Growing investments in every sector and the Capital Goods Index which has shown agrowth rate of 13.6% in FY06 are projecting a high positive image over the demand forhydraulic machinery. Demand for hydraulic machinery for FY05 was projected to bearound Rs1,483 crore (US$339.01m) which is growing at a compounded annual growthrate (CAGR) of 11.99% from 2002 till 2005.Range of product specifications in the hydraulic industry is wide and the volume ofproduction in comparison to that is not high. Hydraulic machinery has high qualitystandards and therefore requirement of R&D services in this industry is very high andalso demands a high investment. These things make the manufacturing of hydraulicmachinery a capital-intensive one.Indian manufacturers of hydraulic machinery are going for joint ventures with foreigntechnology suppliers in order to obtain new technologies. These technologies are requiredto succeed in the market that is dominated by imports.OpportunitiesThere is a good demand for hydraulic machinery but the Indian manufacturing base is yetto come up with a suitable technology base to manufacture heavy duty hydraulic systems.Foreign investment in this sector would be conducive for its growth. However, precisioncasting manufacturers in India at present are not many but with increased inflow offoreign investments more organized casting manufacturers will be operational. Thecurrent surge in automobile demand is another driving factor for a growth in demand inhydraulic machinery.Indian Pumps IndustryThe Indian pumps industry caters to a range of sectors from agriculture to nuclear powergeneration. The industry, holding €500m worth of global market share as in 2005, isexpected to capture a bigger slice in 2006. Pumps Manufacturing Industry in India isgrowing at a rate of 10-12% per annum. Approximately 6,000 pumps are manufactured ina day in India.
  16. 16. This industry exports to nearly 70 countries around the world. According to industryestimates, India produces around one million pumps of various kinds. There are around800 large, medium and small units producing pumps.Technical Sustainability: India has today become a reliable, technically competent,competitive and enterprising outsourcing option for many multinational companies inindustrial pumps. This has emerged through technical collaborations and joint venturesthat Indian companies have with multinational majors.In addition, various research institutes such as the Small Industries Testing and ResearchCentre (SiTarc) in Coimbatore have developed energy-efficient designs for pumps tomeet the norms of Indian standards. The Indian pump industry has a record of indigenousresearch and development in all the three areas of technological intensities - from mass-produced pumps for agriculture to gigantic pumps for interlinking rivers, and pumps forcritical services such as nuclear power generation.Growth Drivers: All the core sectors of the industry namely power, oil & gas, water &infrastructure projects, metal & mining, chemicals, drugs & pharmaceuticals, food &beverages require various types of pumps and all these industries are growing at asignificant rate today in India.Textile MachineryTextile machinery manufacturing is a Rs21,024m (US$471.98m) industry in FY06. Thisindustry derives its demand from the textile industry which is one of the oldest industriesand has been a back bone for the Indian economy. Growth in Textile machineryproduction in India has been very dull for quite some time; this industry has seen a nearto nil growth during the period of FY02 to FY04. But in January 2005 the industry had aturn around due to quota abolition that brought about a positive note in all the textileindustries and prompted them to go for technologically advanced machinery forproducing international quality of fabrics. As a result textile companies preferred toimport textile machinery from abroad as domestically manufactured machinery were nottechnologically advanced like machinery manufactured in European countries.However, domestic textile machinery production has registered a growth of 9.16% and53.36% for FY05 and FY06. These growth rates were achieved by domesticmanufacturers with a shift in technology levels of machinery and the competitive pricesthat was offered.Demand Drivers: Growth in the demand for textile machinery is expected from thegrowing textile industry. Customs duties on imported textile machinery has been reduced,reduction in government restrictions on the import of used capital goods has alsoprompted industries to import second hand machinery from abroad with a good residuallife. The existing units undertook capacity expansion that triggered a growth in textilemachinery production.
  17. 17. OpportunitiesMany representatives’ offices are already there in India who are having their principals inmany countries across the world. As metamorphosis has already happened in the industryin the post WTO scenario it is a matter of global market force that Indian textile industryis shaken up for technology upgradation. Under such impacting growth driversopportunities lie either in collaborating with a good partner in India to produce textilemachinery or setting up manufacturing units producing components for textile machineryas lots of imported machinery is installed. Indian machine tools industry is also shapingup and as a result setting up manufacturing units with local supply of components arealso possible.Automobile IndustryThe Indian automobile industry which is worth Rs960 billion (US$21.94 billion) is one ofthe fastest growing automobile industries in the world. This industry has been registeringa compound annual growth rate (CAGR) of 14.5% for the last five years (2000-05) with aprojected growth in 2006 being 17%. Growing initiatives of Indian government in turningIndia into a hub for small car manufacturing is attracting huge foreign investments.Growth in automobile exports has been registering an average rate of 45% for the pastfive years (2000-05), with passenger cars and two wheelers having 22% and 60% share init.Two Wheelers: India is the world’s largest manufacturer of two wheelers with a growthof 15.49% CAGR for the last five years (FY02-FY06). Total two wheeler production in2005-06 was 7,600,801 (nos.). The share of the two wheelers segment in the entire Indianautomobile market was 70.19% in 2005-06. An upsurge in the Indian economy hasattracted more and more buyers. This has increased the number of people who can afforda two-wheeler. The intrusion of foreign and merchant bankers have resulted in easy loansfor both the consumers and the entrepreneurs.The Indian two wheeler market is occupied by five players who have establishedthemselves with a strong infrastructure, R&D and after sales service support. There areJapanese OEM’s as well as Indian OEM’s. Hero Honda is the leading motorcyclemanufacturer in India followed by Bajaj Auto Limited.Passenger cars: The Indian passenger car segment has been growing at a CAGR of18.23% during FY01-FY06. In this segment small cars occupy around 80% of theproduction and sales. Projected CAGR for overall passenger vehicle during 2005-2014being 9% forecasts a healthy growth. Total 4 wheelers production in 2005-06 was1,720,897 units. Small cars that are in the affordable price range in terms of Indianincome levels, is attracting major demand, but increase in levels of disposable incomewith Indian customers, due to a growth in the economy is gradually increasing the salesof upper segment or luxury cars also. Maruti Udyog Limited is the leading small size carmarker. There are Japanese, Korean, American and European OEMs along with IndianOEMs. Foreign manufacturers like Hyundai, GM, Toyota, Skoda, Auto, Volvo and Fordthat have manufacturing facilities in India.
  18. 18. Commercial Vehicles: The Indian commercial vehicles market is broadly categorizedinto LCV & MHCV (Medium & Heavy Commercial Vehicles). This segment has beenexperiencing a CAGR of 24.55% (FY01-FY06). Total commercial vehicle production in2005-06 was 391,000 units. Recent growth trends in this industry are because ofincreasing investments in infrastructure. Export of commercial vehicles was only 5% ofthe total Automobile exports (FY05), but this share is expected to grow with increasinginvestments in the commercial vehicles segment from global majors.Laboratory EquipmentGrowing awareness among public and private enterprises about the requirement of R & Dfacilitations in order to become more competitive in the world market is leading to anestablishment of R&D units. These new R&D units and modernization of existing unitsare creating a higher demand for laboratory equipment.In India R&D spending is dominated by the Central Government followed by the privateindustry. Demand for laboratory equipment is more from the Council of Scientific andIndustrial Research (CSIR), Defense Research and Development Laboratories (DRDL),Department of Space, and the Department of Atomic Energy. In private industries steel,pharmaceuticals, telecommunications, and biotechnology sectors are creating a demandfor laboratory equipment.All the sectors mentioned are experiencing impressive growth rates and attracting highinvestments. India for many MNCs has become the major out sourcing destination fortheir R&D services. Companies like Nokia and Intel have already established R&D hubswhich will enable requirements for laboratory equipment.OpportunitiesThe LAB products that also have better prospects in the Indian market include:spectrophotometers, HPLC systems, RIA analyzers, electron microscopes, multi-chemistry analyzers, batch analyzers, random assay analyzers, fully automatedcontinuous/random analyzers, ELISA readers, electrophoresis instruments, liquidchromatograph, osmometers, and blood gas analyzers.Medical EquipmentThe medical equipment market is in the throes of rapid modernization. This industry iscurrently worth US$1.85 billion. The demand for hi-tech products is close to 80% of theoverall market in India. The domestic market comprises of low-tech devices. Majorinternational medical equipment giants are lining up their investments in India for settingup a local base. The Indian health imaging market is expected to double from the existingUS$350m by 2010. X-ray, ultrasound, CT and MRI are expected to collectively accountfor 68.6% of the health imaging market.
  19. 19. Medical equipment industry is heterogeneous, comprising sub-markets, eachexperiencing different growths. Imported equipments are sold by authorised distributorswho look after the sales and service aspects. Manufacturers can be sub-divided intoIndian operations of MNC’s (Siemens, GE) and local companies. Most of the localmanufacturers are in small scale sectors with a limited market reach. Apart from 6-8major companies, no big company has a distribution or support network in India, withmost of them dependent on the local dealers/ suppliers for furthering their businessinterest.A number of private entrepreneurs are planning to enter the Indian healthcare sector.Growth in demand is seen for Products like Intensive Critical Care Unit (ICCU),Heart/Lung machines, linear accelerators, Doppler, ultrasound machines, MRI scannersetc. Cardiology equipment accounts for 20% of the total market followed by imagingsystems with 15%. Private sector entry into the Indian insurance market has opened avast scope for high-end medical facilities and healthcare equipment market as well.Demand drivers for this industryHealthcare IndustryThe Indian healthcare industry has emerged as one of the largest service sectors in India.Healthcare spending in India is expected to rise by 12% per annum. An estimate suggeststhat by 2012 healthcare spending could contribute 8% of GDP and employs around 9mpeople. Rising incomes and growing literacy are likely to drive higher per capitaexpenditure on healthcare. The trend is shifting from infectious diseases to lifestylediseases due to a change in lifestyle particularly in the urban and semi-urban locations.Indian healthcare industry though huge is not enough to meet the requirements of theIndian population. There is a requirement of around US$20 billion investments in thehealthcare industry. The Indian government is planning to do this invest in multiplephases, which will create a higher demand for healthcare equipment. Growth in incomelevels and awareness towards health in Indian population is leading to increasedhealthcare spending. This means more private hospitals apart from government runhospitals are yet to be established. Demand for Indian healthcare equipment is increasingin the third world because of their low cost product and services.OpportunitiesAn immense opportunity for foreign investment is there in the medical equipment sector.Increased spending on healthcare will drive more demand into this sector. Hi-techequipments in the operation theatre will be more in demand. Similarly devices related tolifestyle diseases too would be on high demand.
  20. 20. Printing Machinery (for print media)India has more than 130,000 printing presses by the end of 2005. Though demand forprinting machinery in India for FY06 is around Rs850 crore (US$210.9m), production ofprinting machinery for that duration is valued at Rs308.4 crore (US$69.14m). While theremaining requirement is met through imports which are of the order of about Rs 550crore (US$123.47m).The sector that is driving the demand for printing machines is the Indian newspaperindustry with a turnover of US$1.84 billion in 2004, which is growing at a CAGR of6.9% during 2000-04. This industry has attracted capital investment of US$2.27m in twoyears by the end of 2004. The Indian media industry is undergoing a modernizationprocess in order to gain from these growth opportunities. In this process they haverealized the need for technically advanced printing machinery to achieve success in thetough competition. Since the machinery manufactured in India is not meeting theirrequirements many newspaper/media companies are importing them from Europe andJapan.According to NPES, the Association for Suppliers of Printing, Publishing, andConverting Technologies three major European manufacturers Man Ronald, Heidelbergand Koenig & Bauer AG (KBA) sold around 100 units to the Indian print industry.Mitsubishi has installed 71 units in the country. By the end of 2005, 250 new units wereestimated to be in the process of import.The Indian Printing machinery manufacturers in order to sustain the competition have toimprove technology wise too..OpportunitiesThe Indian printing machine manufacturers are not equipped with the latest technologyhence large demand is catered through imports. Recently the print media has beenallowed for 100% foreign direct investment and as a result the foreign print mediacompanies are attracted towards India. This may further increase the growth in thedemand for printing machines.Automotive Components IndustryThe Indian auto component industry has been growing at 20% CAGR for the last fiveyears (2000-05). Projected CAGR during 2005-14 is 17%. The Indian automobileindustry which is putting huge efforts in foraying into the European and Americanmarkets is facing stringent technical and safety norms. In order to fulfill these norms andalso push sales in these regions they are investing heavily in acquiring high end autocomponents, which drives the demand for this industry. Increasing investments inproduction and technology levels in the automobile industry is another driving force forthe creation of higher demand for auto components. Many MNCs are present inautomotive component manufacturing like Delphi, Bosch, Denso, Lear, GKN, etc.Companies like Tata Motors, Bharat Forge, UCAL Fuel System, TVS Autolec Ltd. etc
  21. 21. are some of the automotive component manufacturers that are also investing in theoverseas markets.Auto component exports were growing at 25% CAGR during 2000-05. It is projected togrow 34% during 2005-2014. The manufacturing components industry in India is fastemerging as a very cost effective, OEM/Tier1 supplier; as a result many vehiclemanufacturers in the world are trying to get benefit from this. Even the Indiangovernment is encouraging this by allowing 100% foreign direct investment in this sector.Opportunities:As per BMI Research, in the Asia/Pacific business ranking, India holds the no.1 rank inthe region. The future growth potential is high; the Indian passenger car market demandis currently huge and has ample room for further volume growth. A stable marketoriented economy is also conducive for a solid growth in the near future. At the backdropof such positive vibes in the market opportunities are significant.Aeronautical IndustryAviation is the key driver to any country’s global economy. Air travel in India is nolonger considered a luxury but a necessity. This has been realized by the Indiangovernment who have designed plans and started implementing them in order to sustainthe growth rate that is being achieved in recent years. These plans constitute investingRs1500 billion (US$3.36bn) in the next five years for buying aircraft, upgrading airports,conducting research and development, improving air traffic control and fabrication ofcomponents. This will create a huge impetus in the growth of the Indian aeronauticalindustry.There is immense potential in India for setting up industries to build aircraft. The existingfleet with Indian Airlines, Air India, Jet Airways, Air Sahara and Deccan Airlines arelimited and they are expanding their network. India is heavily dependent on foreigncountries for buying and leasing civilian aircrafts such as Boeing and Airbus. Actionplans are being taken by the Indian government for setting up parallel aircraft industry todesign and manufacture small, medium and wide-bodied passenger aircraft as well asmaintenance and overhauling facilities of aircrafts.The Hindustan Aeronautics Limited (HAL) India’s largest aeronautical organizationmanufactures various types of military aircraft and helicopters. Today, HAL has 16Production Units and 9 Research and Design Centres in 7 locations in India. TheCompany has an impressive product track record - 12 types of aircraft manufactured withan in-house R&D and 14 types produced under license. HAL has so far manufactured3,550 aircraft (which includes 11 designed indigenously), 3,600 engines and overhauledover 8,150 aircraft and 27,300 engines.HAL has been successful in numerous R & D programs developed for both Defence andCivil Aviation sectors. HAL has made substantial progress in its current projects:
  22. 22. • Dhruv, which is Advanced Light Helicopter (ALH)• Tejas - Light Combat Aircraft (LCA)• Intermediate Jet Trainer (IJT)• Various military and civil upgrades.• There are three joint venture companies with HAL:• BAeHAL Software Limited• Indo-Russian Aviation Limited (IRAL)• Snecma HAL Aerospace Pvt LtdApart from these three, the other major diversification projects are Industrial Marine GasTurbine and Airport Services. Several Co-production and Joint Ventures withinternational participation are under consideration.HALs supplies / services are mainly to the Indian Defence Services, Coast Guards andBorder Security Forces. Transport Aircraft and Helicopters have also been supplied toAirlines as well as to various State Governments in India. The Company has alsoachieved a foothold in export in more than 30 countries, having demonstrated its qualityand price competitiveness.OpportunitiesThe growth in aeronautical industry is almost certain as aviation industry in India ispoised to grow further. Another reason for the high growth in aviation is due to no frillairlines (low cost airlines). Due to an upsurge in air traffic in India aircraft maintenance isin great demand. It is even economical to have maintenance facility for aircrafts in Indiacompared to other developed countries. Opportunities are envisaged in manufacturinglight bodied aircraft, other aircrafts and components for aircraft maintenance. 100% FDIis allowed in airport infrastructure and 49% for civil aviation. This will create lots ofopportunities for foreign investments as modern airports will have better aircraft handlingand landing facilities. As a result the aeronautical industry and its allied engineeringproducts will have a great market potential in India.Shipbuilding IndustryIndian sea trade by volume and value is 90% and 70% respectively. But the priority forthe shipbuilding industry has been very poor till the mid 90’s. The shipbuilding policywas liberalised in 1991 by allowing private sector participation in building all types ofships. The Indian shipbuilding industry has risen to the 8th rank globally in terms of order
  23. 23. book position. Indian shipbuilding industry had orders of 977,400 DWT i.e. 91 ships bythe end 2005. The current order book is dominated by vessels less than 10,000 DWT.Shipbuilding order book has crossed US$1 billion of which bulk cargo occupies a majorshare with US$330m. Export revenue is two thirds from the total revenue and exportorders are mainly from the European owners.Private and public participation in shipbuilding is equal at present but in future it isexpected that private players will have a major share. This is expected on the basis ofproblems that public companies face like low technical efficiency, labour related issuesand production performance.The three important private players in this industry are- ABG shipyard, Bharati shipyardand Chowgule shipyard. The order book of these companies by the end of 2005 wasUS$281.1, US$171.4m and US$111m.The Indian shipbuilding industry is facing many challenges such as lack of design andheavy engineering facilities, absence of exposure to new technologies that can beincorporated in the ships, being confined to small specialised and conventional vesselsand scarcity of qualified professionals. About 80% of the raw material is importedthereby imposing higher cost of manufacturing coupled with poor infrastructure andinefficient supply chain management, impeded a healthy growth of the industry.OpportunitiesFuture prospects for the Indian shipbuilding industry are expected to be bright with agrowth in Economy, which will result in higher investments in infrastructure (logistics)making it more competitive.Valves ProductionValve production in India comes from both the organized and unorganized sectors. Theorganized sector of the valves industry is around Rs 950 crore (US$210.9m), while theunorganized sector contributes Rs 550 crore (US$122.1m) as per 2005 figures. Valves areimported heavily from China and other countries; Import for the FY06 is around Rs 460crore (US$103.27m), an increase of 24% to that of previous fiscal year. The import islargely for precision type of valves mainly used in process industries like Pharma, Foodprocessing, steel, and chemical and refineries. This industry is growing at an average rateof 12%. With major expansion in core sector industries such as power, petrochemicals,oil as well as steel, the valve industry has an ample potential for growth. The other sectorfrom which demand has been rising is from the water treatment plants, shipyards andcollieries. Another area of potential demand for the valves is the replacement market.Mechanical control valves, the key actuator in industrial systems, are manufactured inonly three locations worldwide. The first location is the US, and the other two are inMalaysia and India. In terms of raw material, machining and manufacturing, India and
  24. 24. Malaysian costs run neck and neck. Where India scores is design, with a 6% costadvantage. This makes Indian-produced mechanical control valves the cheapest in theworld. Quite clearly, the country’s mechanical and eletro-mechanical manufacturing basehas improved dramatically with the evolution of its tooling and machining industry. This,combined with the easy availability of key raw materials such as steel, polycarbonate,plastics, aluminium and acrylic has given India a competitive advantage.Valve manufacturing has traditionally been concentrated in certain regions of the country.A large number of small manufacturers are concentrated in Jalandhar, Agra, Nasik andHowrah. These units manufacture the entire range of valves but generally concentrate onvalves used in specific sectors like water supply and small and medium sized lightengineering industries.The diverse and large industrial valves segment faces a stringent quality requirement thatleaves this field to a few major valve manufacturers. Such valve manufacturing facilitiesconsist of the large companies such as Audco, Alfa Laval, Schrater Duncan, BDK Groupetc. These companies manufacture the entire range of valves with each company havingits own area of specialisation. And the manufacturers are those who have producedquality goods and built a brand image over the years.OpportunitiesValve production in India does not have immense opportunities for foreign investment.This is due to the fact that the replacement market in India is mostly catered byunorganized or mid size valve manufacturers. However, current industrial developmentsin the steel industry and oil & gas explorations will certainly promote foreigncollaborations in technology.Food & Food Processing Equipment IndustryFood Process Industry: India, world’s second largest producer of food is one of themost favored destination for investment to many countries in the world.. Food processingis one of the largest industries in India and accounts for US$29.4 billion as in FY06. Thisindustry ranks fifth in terms of production, consumption, export and growth prospects.This industry is estimated to grow at 9-12 per cent, on the basis of an estimated GDPgrowth rate of 6-8 per cent, during the tenth five-year plan period. Food processingindustry is highly unorganized. Organised food processing industry is expected to grow atthe rate of 30% in the next five years reaching US$2.4 billion by 2010 from the currentUS$674m.Government Initiatives in attracting Investments: Indian government in order toattract investment into food processing industry, it has formulated and implementedseveral schemes like providing financial assistance in setting up new units and formodernizing existing units. Food processing industries were included in the list ofpriority sector for bank lending in 1999. Automatic approval for foreign equity up to 100
  25. 25. per cent is available for most of the processed food items except alcohol, beer and thosereserved for small-scale sector subject to certain conditions.Food processing equipment: Food process equipment is gaining demand with thegrowing investments in food process industry. Food process equipment manufacturingindustry in India is not highly organized, there are no major brands in manufacturingthese equipments. Major medium sized equipment manufacturing units in India arehaving collaboration with foreign companies in order to acquire new technologies. Thereis absence of high end research facilities in this industry which will help in developingtechnologies.Machinery imports: Excise Duty of 16 per cent on dairy machinery has been fullywaived off and excise duty on meat, poultry and fish products has been reduced from 16per cent to 8 per cent.Investment Opportunities: Even though food processing industry is large but share offood processed to that of total produced is only 32%, this provides good opportunities ofgrowth to this industry. The Confederation of Indian Industry (CII) estimates that thefood processing sector has the potential of attracting US$33 billion of investment in next10 years.FDI inflow in food processing reached US$2,804m in March ’06. In ’05-06, the sectorreceived approvals worth US$41m. This figure is almost double the US$22m approved in04-05.Informatics Industry/ComputersInformation Technology related hardware sales in India have realized its potential whenthere was a boom in IT. In the initial period sales of IT hardware like PC, Notebooks,Printers, Servers and networking equipment was completely dependent on the imports.However, large scale investments into IT hardware have changed the scenario andexports have reached a value of around US$1.4 billion by the end of 2005.PC sales have been experiencing a growth of 25% for the past two years and are expectedto be steady over 30% till 2007. PC sales demand is deriving its demand mainly from theIT and ITES sectors and also from other industries that are having increasing applicationsof technologies creating a new demand which is expected to grow further. PC penetrationin India is only 14 per thousand households; this shows the potential demand that isexisting in the market that needs to be tapped. Exports of desktops has been growing at25% CAGR for the past seven years (1998-2005), which is poised to grow further withthe entry of new manufacturers.The printers market can be divided mainly into three segments; Dot-matrix, Inkjet andLaser printers. The printers market for FY06 has registered a growth rate of 28%, whilesales of Dot Matrix, Inkjet and Laser has grown by 18%, 13% and 128% respectively forFY06. Market for these printers is expected to grow further with the increasing ERP
  26. 26. applications in Industry in order to increase the production levels. Further convertingmany manual photographic labs into digital lab has raised the demand for laser printers.Other IT hardware components like Servers, Networking equipments, UPS, Monitors,and Keyboards are growing at a compounded annual growth rate (CAGR) of 20%, 10%,34%, 28% and 28% during 2000-05.The IT hardware market is projected to grow at much higher levels in comparison to thepresent growth trends. These growth trends are projected on the basis of growth in IT andITES (IT enabled services) industries, growing applications of IT hardware in otherindustries for increasing production efficiency and performance efficiency, growingawareness towards computer utilization, educational institutions making computereducation mandatory and above all increased internet usage in the country is graduallycreating more and more demand for home PCs.OpportunitiesA great potential for foreign investment lies in this sector. Network equipment,PCs/notebooks/laptops, etc. will be more in demand. There is enough room for newventures manufacturing such items and government’s thrust in IT/ITES export willfurther add spurt to the demand for informatics/computers.Boilers IndustryBoilers are critical high-pressure equipments used in steam/power generation plants. TheIndian boiler industry in FY06 is Rs39.5 billion (US$886.77m) and its production inIndia has grown at an average rate of 25.37% for the past five years (FY02-FY06).Though the production decreased by 1.25% in FY04, it regained its growth by 61.5% inFY06. Import of boilers has fallen by 6.86% to Rs 65.13crore (US$14.6m) (Excludingthe components of boilers), while boiler exports has increased by 27.57% to Rs 54.3crore (US$12.19m) for FY06.The boiler market is divided into two segments power plants and industrial boilers.Boilers used in power plants are above 200 TPH (tonne per hour of steam), industrialboilers range between 30 to 200 TPH, where as those that are below 30 TPH are calledprocess boilers. Boilers can be either oil fired or solid fired (Coal). Choice of boilersdepends on the availability of fuel. Demand for oil, gas and naphtha-fired boilers are highin Western India, whereas in Tamil Nadu demand is more for bagasse-fired boilers due toavailability of sugarcane. Most of the major companies in boilers have acquired the latestCFBC (circulating fluidized bed combustion) technology through collaborations. There isalso a growing shift towards co-generation (simultaneous production of electrical powerand thermal energy) boilers.Bharat Heavy Electricals Ltd (BHEL) manufactures power plant boilers above 200 TPH.The company has a major share in the market (which is estimated to be more than 65%).Thermax is the market leader in the small boilers segment (<30 TPH). Power sectoraccounts for a large part of the demand for boilers. Indian government initiative in
  27. 27. developing infrastructure to sustain the growth rate has allowed the entry of new players(private) into this sector. Growing investments in the power sector will further increasedemand for the boilers, keeping its growth alive.OpportunityHigh growth power sector envisages a good amount of investment and technology tie-upsin boilers manufacturing. Industrial boilers (lower capacity) are mostly catered by SMEsin the domestic market. However, there is a good demand for boilers used in the powersectors and integrated steel plants.Sector 2: Machines and Mechanical Devices Type of Products The type of products include machines and mechanical devices for thermo-plumping and air-conditioning, concrete articles production, dishwasher, washing machine, tumble dryer and industrial use engines. Use of the Product Thermo-plumping and air-conditioning products are used as domestic and industrial appliances. Concrete articles are used in construction industry. Dishwashers, washing machines and tumble dryers are used in kitchens while industrial use engines (generators and turbines) are used for electric power generation and/or energy transformation. Overview Machines and mechanical devices have a much bigger scope than indicated in the above sections – type of products and use of the product. However, for the purpose of this study, it is restricted to the above categories.Sub sector: Thermo-plumping & Air Conditioning, Washing Machine (HouseholdAppliances Industry) The table given below presents the trends for household appliances. Trends in Household Appliances 2003-04 2004-05 2005-06 Production (m units) Refrigerators 3.72 4.36 5.14 Air Conditioners 0.98 1.23 1.47 Window 0.72 0.86 1 Split 0.26 0.37 0.47 Washing Machines 1.36 1.6 1.84 VCR/ VCP 0.14 0.12 0.11 Microwave oven 0.36 0.43 0.5 Production Value (Value in Rs m) Refrigerators 44,794 50925 55533
  28. 28. Trends in Household Appliances 2003-04 2004-05 2005-06Air Conditioners 41,260 47,860 56,000Washing Machine 18,420 23,272 29,472VCR/ VCP 690.57 676.59 669.6Microwave Oven 4,320 4,730 5,000ConsumerElectronics 7,518 8,360 9,361Imports ofConsumerElectronics 13,284.56 20,784.67 24,417.86Exports ofConsumerElectronics 5,247.66 6,136.26 8,188.46Source: Elcina, Indiastat & Cygnus ResearchSub sector: Concrete Articles Production MachinesThis segment includes products such as • ‘Horizontal’ Concrete Batching/Mixing Plants. (45, 60, 80, 120m3/hr. capacity) • ‘Compact’ Concrete Batching/Mixing Plants. (20, 30 m3/hr. capacity) ‘Modular’ Concrete Batching/mixing Plant. (20, 30 ,45 m3/hr. capacity) • ‘Mobile’ Concrete Batching/Mixing Plant. (12, 15, 18, 20, 25 m3/hr. capacity) • ‘Reversible’ Mobile Concrete Mixer. (8, 10 m3/hr. capacity) • ‘Stationary’ Concrete Mixer (10, 12 m3/hr. capacity) • ‘MKM’ Concrete Kerbing Machine. • Concrete Block making Machine (Stationary/Mobile)This segment is dominated by few foreign players such as Schwing Stetter India PvtLtd (a 100 per cent subsidiary of the German based Schwing group of companies).The high demand for office and residential space in tier-II cities coupled withemphasis on completion of construction projects within the schedule is set to enhancethe popularity and use of ready mix concrete which in turn would boost the prospectsof companies like Schwing Stetter L&T, Grasim, and ACC are the major players witha pan-India presence and a market share of 75 to 80 per cent. As of 2006, the countryis dotted with around 140-150 commercial RMC units. This industry employs close to30,000-35,000 people directly and around 50,000-60,000 people indirectly. Thenascent industry in India is pegged at approximately Rs 20-25 billion, growingannually at a compound rate of around 25-35 per cent, over the past four to five years.According to industry sources, the RMC segment churns out, on an average, 28,000-30,000 cubic meters of concrete everyday..Sub sector: Industrial Use Engines (Turbines and Generator Sets)The capacity established for manufacture of various kinds of turbines such as steamand hydro turbines including industrial turbines is more than 7,000MW per annum inthe country. Apart from BHEL, the public sector unit that has the largest installedcapacity, there are units in the private sector manufacturing steam and hydro turbines
  29. 29. for power generation and industrial use. The manufacturing range of BHEL includes steam turbines up to 660MW units rating; the facilities are available for 1,000MW unit size. They have the capability to manufacture gas turbines up to 260MW (ISO) rating and gas turbine based co-generation and combined cycle systems for the industry and utility applications. Custom-built conventional hydro turbines of Kaplan, Francis and Pelton types with matching generators are also available indigenously. AC generators manufactured in India are on par with international ones and consistently deliver high quality power with high performance. Domestic manufacturers are capable of manufacturing AC generator right from 0.5KVA to 25,000KVA and above with specified voltage rating. The imports and exports during 2004-05 were Rs16.76 billion and Rs5.9 billion respectively.End-user sub-sectorsConstruction Industry India is witnessing faster growth in its demand for infrastructure and construction services. Since the existing infrastructure is far below requirement, to maintain the existing growth rates, the Indian government is increasing its focus towards developing a strong and sound infrastructure. In India construction is the second largest economic activity after agriculture which is estimated to be growing at an average rate of 9.5% during FY02 to FY06. The Indian construction industry forms around 12.8% of the GDP and 52% of gross fixed capital formation. Earlier participation of the private sector in many infrastructural projects was minimal. Government’s thrust for infrastructure has changed the scenario. It is now focusing on a private public partnership model (PPP). This has seen a number of private sector construction players investing in the sector. Infrastructure related construction industry is centred around roads, ports, power, and real estates development. Government is following the BOT (Build-Operate-Transfer) model for executing the projects. This model describes the project is to be executed and operated by the private players until they recover their investments and earn a profit. Another type of BOT contract is based on annuity, where the private firm recovers its investments and earns profits in the form of annuity paid by the government. Opportunities According to an industry estimate, India has the potential to absorb US$150 billion of foreign direct investment in the next five years in infrastructure alone. And a large part of investment is expected to be diverted towards construction activities.
  30. 30. Considering the present growth rate and demand for infrastructure, constructionsector is expected to register higher growth rates in future. Already in airports(Greenfield and modernization) foreign companies are involved in a partnership withlocal companies.Household AppliancesMarket size & growth: Indian household appliances (Consumer durables) can besegregated into large and small household appliances. The consumer durable marketin India has started experiencing its real growth with the entry of multinationals likeLG Electronics, Samsung, Electrolux, etc. Consumer Durables and Electronics (usedas household appliances) was one of the largest industries in India, with annual salesof US$5.8 billion in 2005. This industry sale has been growing at a compound annualgrowth rate (CAGR) of over 8.3% during 2000-05. Growth in sales value is lowerthan the sales volume which is the result of reduction in prices by the companies tosustain the growth rate in a competitive market.With a growth in production in the organized segment and domestic availability ofbranded products due to lowering of import duties and other liberal economicmeasures, the share of unorganized segment has come down sharply to only 8 to 10%from the previous 40 to 50%.Growth drivers: Growth in disposable income with the Indian consumer is one majorfactor in demand creation where as volatility in prices and credit facilities are otherdecisive factors in determining the sales of items. The Indian consumer’s highersensitivity to prices has resulted in companies making the pricing method their beststrategy.Growing Opportunities: A major proportion of population in India though residing inrural areas, their share of demand for consumer durables is so far only a quarter. Therecent trends of higher growth in demand in the rural areas is an encouraging scenariofor the manufacturers need to have a different strategy for rural areas in order to tapthis high potential market.Large Household AppliancesRefrigeratorsRefrigerators have been manufactured in India since 1950s. Until 1990’s over 90% ofthe market was controlled by traditional players, this has changed with the entry ofmultinationals after economic reforms in 1990’s. The refrigerators market in India hasbeen growing at an average rate of 15% for the past five years (FY02-FY06). The sizeof the refrigerator market is estimated around 4.5m units in 2005-06. Domesticpenetration of refrigerator is 9%, where urban areas and rural areas account for 75%and 25% of demand.
  31. 31. Air Conditioning Machines (AC)The annual average growth rate of AC’s currently ranges around 20%. Analystsexpect the annual growth rate to register more than 25% in FY 2007 on the back ofstrong sales of split ACs. An AC penetration level in Indian households is only 1%.The competition in window AC and split AC segment has grown a lot more intense inthe past few years. Consequently, companies have stepped up their advertising andpromotional spends. Technology has also become a differentiating factor. Thereduction in the excise duty in the budget 2006-07, improved the competitiveness oforganised companies vis-à-vis small-scale players. Unorganised players sellingunbranded ACs (assembled) occupy a sizeable market in the household segment.However, with air conditioners becoming affordable due to lowering in prices, thesize of branded ACs in the Indian market is set to grow.The import of air-conditioners and refrigerators continues in small quantities mostlyfor private use rather than for resale or distribution. Until recently, the importation ofrefrigerators was restricted. But foreign firms now are allowed to establish jointventures, 100% owned operations to manufacture AC and refrigerator products.Washing Machines & Microwave ovensThe washing machines market which is an estimated Rs200 billion (US$449m) inFY06 has recorded an average growth rate of 15% for the last four years. Withgrowing investments in this market it is expected to register a higher growth in future.The microwave oven market has been growing at a rate of 16-19%. In this marketboth LG Electronics and Samsung, which together account for nearly 60% of the totalmarket are the market leaders.Small Household AppliancesDVD PlayersDVD player sales which have registered a 28% growth in 2005 is the segment whichhas registered the highest growth rate among all other small household appliances.This growth was achieved from new models introduced in the market which arehaving advanced technology applications. Media industry is growing at 7%compound annual growth rate (CAGR) pushing the demand for DVD players throughits products like movies and songs etc. The country currently is having over fivemillion home video and DVD subscribers. With the current demand scenario, thehome video segment offers ample growth opportunity. It is expected to grow over30% in the next five years.Watches & ClocksWatch and clock with sales of 22.6mn and 28.4mn have registered a growth of 10 and8% respectively in 2005. As only one-fourth of the population (currently over 1
  32. 32. billion) owns a watch, there is huge untapped potential. Around 40% of this market isunorganized with most of the major players eyeing on the urban areas leaving therural areas for unbranded products. In Rural areas market is occupied mainly byunorganized sector. Watches and clocks imported from China has main share in ruralmarket due to its cheaper price range compared to domestic brands. However,domestic watch manufacturers are also now introducing low price watches targetingrural markets. Quartz clocks are manufactured largely by unorganized players;however a few of them could rise to top clock manufacturers and export also.OpportunitiesLarge household appliances sector like refrigerators/ACs is having good growthopportunities. However, Korean giants (LG and Samsung) have already establishedthemselves in this market. But still at a competitive price if products are offered in themarket with an international tag the scope for new comers still exist.Commercial RefrigerationAccording to Blue Star Ltd and Cygnus Research, commercial refrigeration marketsize was in the range of Rs11894 m and Rs12000 m. The table given below gives thetrends for the years FY2004 to FY2006. Commercial Refrigeration Market Sales (Rs. in Millions):2003-06 2003-04 2004-05 2005-06 Growth % CAGR2 2002-03 2005-06 003-06 over 2004- 05 Commercial Refrigeration Cold Storages Halocarbon refrigeration 500 600 700 16.67 18.32 400 systems only* Ammonia refrigeration 750 900 1080 20.00 20.00 600 systems only* Coolers Drinking water 1100 1300 1680 29.23 23.58 900 Bottled water 450 520 680 30.77 22.93 450 Visi (display type) 2400 3200 4500 40.63 36.93 1600 Bottle (chest type) 650 710 770 8.45 8.84 600 Reach-in refrigerators 23 24 30 25.00 14.21 20 Beverage / juice 115 121 135 11.57 8.35 100 dispensers Display cases 55 57 60 5.26 4.45 50 Milk 160 168 195 16.07 10.40 150 Chocolate 10 15 20 33.33 41.42 10 Mortuary 25 30 35 16.67 18.32 20 Freezers Deep (chest type) 900 1050 1150 9.52 13.04 750 Softy ice cream 32 34 58 70.59 34.63 30
  33. 33. Hard ice cream (batch 22 23 25 8.70 6.60 20type)Hard ice cream 42 45 50 11.11 9.11 40(continuous)Blast 108 119 126 5.88 8.01 100Spiral 41 45 50 11.11 10.43 40Transport Refrigeration & 300 400 550 37.50 35.40 200Bus AC+Total - Commercial 7685 9361 11894 27.06 24.41 6080Refrigeration Source: Cygnus Research & RAMA
  34. 34. Sector 3: MouldsType of ProductsMould is a container into which liquid is poured to create a given shape when ithardens. Moulds can be broadly categorised into plastic injection moulds,compression moulds, investment die casting moulds, blow moulds and pressure diecasting moulds.Use of the ProductMoulds find usage in automobile, home-appliances, engineering, oil and paint,refrigerator, irrigation and lighting applications.OverviewMoulds industry can be broadly categorised into moulds for plastic products andothers.Moulds for Plastic ProductsThe chart given below depicts the classification of plastic products by type of mouldprocesses used. Approximate consumption of plastic in India according to various processes is as follows:Plastic Moulding by Process: 2005Process % Share in Total Consumption in IndiaExtrusion 75.6Injection Moulding 18.0Blow Moulding 5.1Rotomoulding 1.3Total (‘000 tonnes) 4,070Source: Cygnus Research
  35. 35. Domestic The Indian plastic processing industry is dominated by a large unorganised sector, which gets excise exemption and other fiscal concessions. In the absence of these fiscal concessions, the organised sector has not grown significantly and as a result, it accounts for less than 15% share of the industry. Exports and Imports Though Indian exports of plastic products have increased over the past decade, it continues to account for only a minuscule share in the world trade. The low presence of the organised large-scale sector and consequently, low economies of scale prevent Indian players from becoming cost competitive in the international market. The key plastic products imported include plastic articles, films, sheets and plastic products for packaging purpose. Exports and Imports of Plastics and Linoleum products Rs m 2003-04 2004-05 2005-06 Exports 7,985.24 13,189.09 11,708.21 Imports 4,875.95 6,213.57 8,963.4 Net Exports 3,109.29 6,975.52 2,744.81 Source: CSOEnd-user Sub-sectorsIllumination Industry (Lamps and Luminaires)The Indian lamp industry is estimated to have a turnover of Rs 4700 crore (US$1055m)in FY06. This industry is experiencing a growth rate of nearly 20% per annum over thelast two to three years. Compact Fluorescent Lamp (CFL) and special kind ofilluminating lamps have registered a higher growth. This industry is having exportvolumes that are around 15% of the total turnover. Growing interests of manufacturersand government initiatives in encouraging exports is expected to increase its percentageshare. A recent surge in lifestyle has created a demand unseen so far for imported lampfittings in the upmarket urban areas.The lamps industry is mainly dominated by MNCs with a market share upto 60% of lampproduction and 40% of luminaries and fittings. This industry is dominated by players likePhilips, GE, Wipro, Osram, Bajaj Electricals Ltd., Crompton and Indo-Asian ruling theroost.Electrification on the Indian villages through government schemes like Rajiv GandhiGrameen Vidyutikaran Yojana (RGGVY) has been increasing the number of villages that
  36. 36. are electrified; this will create a new demand for the lamp industry. Demand for lampsthat are having low power consumption (an example CFL) is increasing steadily since thepower consumed for illumination in India is more than 20% of the total power produced,where as in developed countries like US it is less than 8% largely due to huge population.OpportunitiesQuite a lot of investment potential exists in this sector. Lamp and lamp fittings are still totake off more due to a massive boom in retail industry and change in lifestyle andcorresponding investment. More growth prospects are observed in LED and CFL andluminaries.Sector 4: Mechanical Designing Type of Products/Services It includes mechanical designing, engineering designing, developing prototypes and final products. This also comprises computer-aided designing and computer-aided manufacturing. Use of the Product These products/services find usage in automobile, telecommunications and engineering industries. Overview India is slowly but surely attracting mechanical designing outsourcing. Indias National Institute of Design churns out hundreds of highly-trained designers every year. Design firms such as Elephant Design and Lopez get high-end work from their clients. As of 2005, Indias contract industrial engineering revenue was estimated at US$500m and by 2010, it is expected to grow to US$10 billion. If we include the value of embedded software used, the current value of Indian design industry services is around US$3.25 billion (with embedded software comprising 78% of the figure) and is expected to grow to US$43 billion by 2015. Share of VLSI Design, Hardware/board design and embedded software in overall revenues (India): 2005 VLSI Design US$583m 18% Hardware/ board design US$139.8m 4% Embedded Software US$2,530m 78% Total US$3.25bn 100% Note: m stands for million and bn stands for billion
  37. 37. In 2006, several marquee brands have invested in new design operations in India or significantly expanded existing facilities. These companies include Agilent, Via, Dell, Rambus, Windriver, Wolfson, Austria Microsystems, Tensilica and Sandisk. Not only are the captive design units expanding at a furious pace, third-party outsourced design service providers based in India are also on the go. Companies like Wipro have even made overseas acquisitions to beef up their design service offerings.End-user Sub-sectorsOptical InstrumentsOptical instruments are used in industrial laboratories (like textile, steel, metallurgicalindustries), educational Institutions (inclusive of medical and engineering colleges),government run scientific research institutes and companies where R&D and testingoperations are performed like pharmaceuticals and biotechnology. The Indian Opticalinstrument industry even though not new in India is controlled mainly by small &medium enterprises. Presence of big brands in this industry is seen only in certainproducts manufacturing.Growing requirement for technically advanced optical instruments is forcing the endusers to import them because the instruments manufactured by Indian companies are notmeeting their technical requirements. Many Indian optical instrument manufacturers inorder to utilize the growing demand for advanced technical instruments are acquiring thetechnology by forming joint ventures with some leading foreign companies. As a resultmany Indian manufacturers in the recent years are increasing their product varieties andefficiencies and increasingly becoming export oriented. Percentage of optical instrumentsexported by Indian companies to the developing countries has increased from 5.3% in1995 to 7.6% in 2004. There are big branded multinationals like Canon which are intomanufacturing, specific range of high end optical instrument products.Demand for the optical instruments is increasing with growing quality norms- which aremaking companies to have stringent testing facilities and growing educationalinstitutions- resulting in an increase in laboratory requirements. Increasing Investment inhealthcare services is creating a higher demand for optical instruments. But still theIndian optical instrument manufacturing industry has to come up with more high endproducts in Indian market.OpportunitiesIncreasing number of modern laboratories in India evokes a requirement of improvedtechnology based optical instrument manufacturing base. Therein lies the opportunity forforeign companies to come to India and invest in the industry.
  38. 38. Sector 5: Iron and Steel Industry OverviewIndian iron and steel industry can be broadly divided on the basis of stages of production:one being the iron ore miners and the rest being the steel producers who manufacturesteel from iron ore. Ore miners engage in mining activities while the steel producers arefurther classified into primary producers and secondary producers. The primaryproducers are further divided on the basis of method of production used for making steel.They are Blast furnace method, Electric Arc furnace (EAF) and Corex method. Thesecondary producers are re - rollers and stand alone producers. The stand alone producercan further be segmented into pig iron and sponge iron manufacturing units.Iron ore IndustryIron ore is the main raw material used in steel production; growth in demand for steel isincreasing the demand for iron ore, whose prices in the recent times has shot up alongwith other raw materials like coal. Indias iron ore reserves are estimated to be at 24billion tonnes, of which a major portion has a rich iron content of about 65% as comparedwith Brazils iron ore reserves which have 66% iron content. Iron ore production inIndia has been increasing steadily from 2003-04 onwards and has shown anestimated growth rate of 17.29% (CAGR) from 120.6mmt in 2003-04 to 165.9mmt in2005-06. The demand for iron-ore is estimated to have increased by 12.9% (CAGR) from52mmt in 2003-04 to 66.3mmt in 2005-06.Sponge Iron: With the growing scarcity of scraps used in steel manufacturing largely bysecondary units lots of sponge iron manufacturing facilities have been installed in Indiain the recent past. India is the world’s largest producer of sponge iron. The growth ofsponge iron production has been estimated to have increased by 18.4% from 10.30mmetric tonnes in 2004-05 to 12.2m metric tonnes in 2005-06. Presently there are 227sponge iron units installed in the country having a capacity of 18.65m metric tonnes perannum. Out of these, there are 204 coal-based units in operation with a capacity of12.55m metric tonnes per annum. There are three gas-based units covering a capacity of6.10m metric tonnes per annum.Pig Iron: India is a net exporter of pig iron with exporting to countries like South Korea,Thailand, Iran & Malaysia. Pig Iron has seen substantial growth during the past few years.Post-liberalization production of pig iron has increased from 1.6m metric tonnes in 1991-92 to 3.85m metric tonnes in 2005-06. Production of Pig Iron (m tonnes) Main Secondary Grand Production Year producers producers total Capacity 2000-01 0.96 2.15 3.11 4.5 2001-02 1.02 3.05 4.07 6.0 2002-03 1.11 4.18 5.29 6.0 2003-04 0.97 4.25 5.22 6.0
  39. 39. 2004-05 0.621 2.55 3.171 6.0 2005-06 (Apr-Oct) 0.173 0.425 0.598 6.0 Estimated Source: Ministry of Steel, Government of IndiaSteel industry: This has been one of India’s oldest industries, contributing to thecountry’s economy to a large extent. India with its 3.37% share in global steel productionin 2005 became the eighth largest producer of crude steel in the world. Its crude steelproduction grew by 16.9% from 32.6m metric tonnes in 2004 to 38.1m metric tonnes in2005 and finished carbon steel production grew by 10.66% over 2004 to 40.05m metrictonnes in 2005. Consumption of finished carbon steel in 2005 stood at 34.39m metrictonnes, which is an increase of 10.33% from 2004. The demand-supply gap remainedsteady from 2003-04 to 2004-05 at around 5.6m metric tonnes but in 2005-06, it has beenestimated to have fallen by 24.8% to 4.26m metric tonnes The domestic demand for steelis expected to grow at a CAGR of 4.04% during 2006-09. The main reasons for growth inconsumption of steel are the growth in infrastructure, construction, transportation andconsumer durables in which steel is consumed as a major raw material.Steel is exported and imported by India since long. For the last three years, there has beena rising trend in the imports, which grew from 1.51m metric tonnes in 2003 to 2.1mmetric tonnes in 2005, with a CAGR of 17.93%. India’s steel exports have declined by16.1% from 5.22m metric tonnes in 2004 to 4.38m metric tonnes in 2005. The mainreason for an increase in steel import is a growth in the automobile sectors mainly by theforeign manufacturers who produce vehicles and as a result import steel in hugequantities.The government plays a very crucial role in determining domestic steel prices. Althoughit does not directly decide the prices and regulate the industry, it acts as an enabler ofprices.SAIL is the largest steel producer in the country among the state owned companies. Otherlarge private players in integrated steel manufacturing are Essar Steel, JSW Steel Ltd., etc.The performance of the domestic major players has been robust in the last three years.The outlook for the coming years is equally positive. Growth prospects in the steelindustry are also attracting global steel manufacturers. Two global steel giants Mittal andPOSCO have signed a MoU with the Orissa state government to establish theirproduction facility that signifies an important step for the Indian steel industry.Steel Products: Based on the shape and size, steel is classified into long products and flatproducts. Long products include bars, wire rods, structural products and railroad sections.They are used in construction and heavy engineering. Flat products include HR coils/sheets, CR coils/ sheets and galvanised sheets. HR coils/sheets are primarily used formaking pipes. CR coils/sheets are used in automobiles (cars, scooters, and motorcycles),white goods, and consumer durables. Galvanised sheets are used mainly in roofing,panelling, automobile bodies and trunks/boxes.
  40. 40. Demand for flat and long steel products in India for 2005-06 is estimated to be around21.83m metric tonnes and 16.28m metric tonnes. Production capacity for flat and longsteel products was 22m metric tonnes and 25m metric tonnes. Future demand for the steelproducts is expected to increase because of the growth in economy which is resulting inhigher investments in sectors where steel products are used as raw materials. Finished Carbon Steel Production of Finished Carbon Steel (m tonnes) Main Secondary Grand Capacity Year Producers Producers Total (Approx) 2000-01 12.51 17.19 29.7 35 2001-02 13.05 17.58 30.63 39 2002-03 14.39 19.28 33.67 39 2003-04 15.19 21.00 36.19 40 2004-05 15.575 22.825 38.400 42 2005-06 (Apr- 7.914 12.91 20.824 45 Oct) Source: Ministry of Steel, Government of India Steel products such as bars and rods, plates, hot rolled coil (HRC), cold rolled coil (CRC) and GP/ GC fall in the finished steel category. The production of finished carbon steel in the country totalled 29.7m tonnes in 2001-02, compared to 14.33m tonnes in 1991-92. Sales The sales of finished carbon steel increased from 14.84m tonnes in 1991-92 to 27.35 tonnes in 2001-02. The table given below presents sales of finished steel during the fiscal years 2000-06. The wide fluctuations in sales growth show that the demand for steel in the country is erratic. Sales of Finished Steel (m tonnes) Month Bars and HR coils/ HR sheets CR coils/ GP/GC Finished steel rods sheets sheets sheets 2000-01 10.53 9.50 0.52 4.54 1.78 26.87(7.44*) 2001-02 11.00 8.62 0.65 4.90 2.18 27.350 (3.1*) 2002-03 11.36 9.05 0.54 5.21 2.737 28.897 (5.6*) 2003-04 11.97 9.58 0.59 5.34 2.848 30.328 (5*) 2004-05 12.84 10.08 1.03 6.11 3.294 33.354 (9.97*) 2005-06 1.90 1.49 0.15 0.91 0.507 4.957 (Apr-May) * Indicates percentage increase in production over previous year Source: Ministry of Steel, Government of India
  41. 41. Imports & Exports Steel is classified in the international market mainly into two standards: American Iron and Steel Institute (AISI) classification, and Unified Numbering System (UNS) classification. Both these systems use a series of 4-5 digits to classify according to the primary alloying element, the approximate content of the primary alloying element, and the approximate carbon content. In addition, there is the American National Standard Institute (ANSI) classification, which mainly deals with finished steel products. As research indicated that carbon-free steel is non existent, low-carbon steel is considered as carbon-free steel in this report. Exports Although steel exports began in 1964, substantial growth in export of finished steel was witnessed only in the post-liberation period. Steel exports increased from 0.9m tonnes (Rs70 billion) in 1992-93 to 3.4m tonnes (Rs258 billion) in 1997-98, overtaking sectors such as electronic goods and human-made fabrics. There has also been a qualitative change in the export of steel items. Earlier, export consisted mainly of plates, bars and rods and structural. Now steel exports comprise semis, hot-rolled coils, cold-rolled coils and galvanised sheets. The prominent export destinations for steel include the US (16.34%), Italy (7%), Spain (4.43%), South Africa (2.14%), Korea (2.7%), Iran (2.26%), Malaysia (2.06%), the Philippines (1.55%) and the UK (1.29%). Exports of Steel Percentage Share of total value Total Total Year Steel Value High Low Finished Pig Stainles (m tonnes) (Rs bn) carbon Semis Carbon Carbon Iron s Steel Products Steel Steel2000-2001 3.000 51.745 1.3 7.7 6.5 4.3 0.01 80.1992001-2002 3.242 44.831 2.88 7.5 8.3 2.6 0.06 78.662002-2003 4.966 92.540 0.5 12.6 9.2 1.7 0.03 75.97 2003-04 5.922 1,19.068 8.99 9.2 11.8 1.7 0.17 68.14 2004-05 4.777 1,83.180 1.66 3.7 4.7 1.9 0.14 87.9 2005-06 4.637 1,77.811 - - - - - - (Apr- October)Source: DGFT, Cygnus Research