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VALUATION OF CONSTRUCTION AND MINING 
EQUIPMENTS AN INDIAN PERSPECTIVE 
PRESENTED BY:INDRANIL AICH 
Reliance Capital Limited 
12/12/14 1
MODULES OF PRESENTATION 
• Valuations overview-Key references ,need and concepts . 
• Valuation's Indian scenario - types of valuers, qualifications, apex bodies 
• global and Indian.IP valuations in India 
• Overview of International valuations standards (IVSC) 
• Role of IBA and nodal agencies in India 
• Valuation of mobile assets - Plant & Machinery - classification and overview 
• CE financing in India patterns issues risks 
• Evolution technology trends in construction equipment industry 
• Construction equipments classification and valuation 
• Backhoe loaders and excavators valuations value factors over value 
risks 
12/12/14 2
VALUATIONS OVERVIEW – WHAT IS VALUE? 
• Depends on who is asking and why 
• Generally an economic concept where what a buyer is willing to 
pay and what a 
seller is willing to take overlap. 
– Implies transferability. 
– Implies agreeable to both parties. 
• In the real world it is a range, not a point 
12/12/14 3
VALUATIONS OVERVIEW- DEFINITION OF VALUATION 
• VALUATION DEFINED 
• A quantitative representation of monetary values inherent in a 
• business / entity, built by the past efforts, capable of 
• generating economic benefits in the future. 
• Enterprise value is the value of the financial instruments 
• representing the ownership interests in an entity plus net 
• financial debt of the entity. 
• Fair value is an amount for which an asset could be 
• exchanged between willing and knowledgeable parties in an 
• arms length transaction. 
• Value of an entity is a sum of parts of a business together adding up 
• resulting the streams if economic returns and value of an enterprise 
can be more than sum of parts 
12/12/14 4
12/12/14 5
• Immovable Assets 
• Classification 
• •Non marketable assets – hospital , 
• college, university ,monument 
• •Marketable – nondynamic – flats 
• ,bunglow, residencia l houses. 
• •Marketable – dynamic – service 
• apartments ,hotels malls, resorts 
12/12/14 6
VALUATIONS INDIAN SCENARIO – REGISTRATION AS 
VALUER 
• • Application for registration as valuer in Govt of India. 
• • An application for registration as a valuer under section 34AB shall be in 
FormN and shall be verified in the manner specified therein and shall 
beaccompanied by a fee of Rs.1000 which shall not be refunded if the 
application 
• is rejected. 
• • No person in service is allowed to obtain the registration in the above 
• form in India. 
• • For details vide – www.laws4india.com/tax 
• • More on Hand book of on Policy, Standards and Procedures for Real 
EstateValuation by Banks and HFIs in India copy circulated youpublished by the 
Indian Bankers Association . 
12/12/14 7
VALUATION INDIAN PERSPECTIVE 
• IBA Hand book specifies - 
• • It shall be necessary that 
• • Every valuer empanelled by banks / HFIs in India be a member of 
• • any one of the undermentioned associations namely : 
• • - Institution of Valuers ( IOV ) 
• • - Institution of Surveyors ( Valuation Branch ) ( IOS ) 
• • - Institution of Government Approved Valuers ( IGAV ) 
• • - Practicing Valuers Association of India ( PVAI ) 
• • - Centre for Valuation Studies, Research and Training ( CVSRT ) 
• • - Royal Institute of Chartered Surveyors, India Chapter ( RICS ) 
• • - American Society of Appraisers, USA ( ASA ) 
• • - Appraisal Institute, USA ( AI ) 
12/12/14 8
VALUATION INDIAN OVERVIEW – EDUCATION IN INDIA 
• Indian institute of loss surveyors & insurance surveyors – 
membership thruexamination . Vide www.iiisla.org (post graduation ) 
• • IRDA – Insurance Regulatory Development Authority – Membership 
thru examination.vide website – www.irda.org( post graduation) 
• Valuers in India go for these qualifications to enhance the work sphere 
but are actually survey related 
• UPCOMING - International Institute of Marine Surveyors UK LONDON 
for Marine survey 
• and valuations opened chapter in India 
• Short term courses by ICSI ,ICAI on valuations 
12/12/14 9
VALUATION INDIAN OVERVIEW – VALUERS SPREAD IN 
INDIA 
• Total of 22000 valuers in India who are registered ( wealth tax , 
IOV,PVAI put together). 
• • Market type – unorganised local players mainly in district level 
except a few 
• companies . 
• • Very few have all services under one roof . 
• • Companies bill to give an enormous impetuous in India . 
• • Spread of valuers in India 
• • 80 % of valuers in india are from real estate sector 
• • 10 % of valuers in Plant and machinery 
• • 10 % others 
12/12/14 10
VALUATION INDIAN OVERVIEW – REVENUE STRUCTURE FOR VALUERS 
• Total market size approx. Rs 1000 crores expected to reach Rs 5000 crores inby 
• 2016 . 
• • Source of data institute of valuers, personal interviews with the officials of IOV 
,PVAI 
• ,company officials.( conservative estimate ) 
• • No organized publication on the revenue generated available in INDIA. The 
data is 
• basis the income tax deptt estimate on the returns filed &cross checked. 
• • Fees grid suggested by IT department prevalent with Banks and Financial 
institutions . 
12/12/14 11
VALUATIONS SEGMENTWISE MOVABLE ASSETS 
REVENUE MODEL 
• Valuation fees of mobile fuel driven assets – high volume low price 
realization model-non cyclic ,voluminous , strong local network and 
presence required. 
• Valuation fees of plant machinery , hi tech machinery low volume and 
medium price realisation. Model – cyclic , high job content in each job 
and local presence not much required. 
• Movable Properties /Assets Valuations revenue generating agencies 
• Mainly borne by banks, business through banks ,NBFC’s & ABL’s. 
• Valuations required for Refinance , Repo assets , top up loans , 
additional loans to industries , sell off , auctions mainly. 
12/12/14 12
VALUATION INDIAN OVERVIEW – IP VALUATIONS IN 
INDIA 
• Sunrise segment in India 
• Mostly dominated by BIG 4 firms 
• In India valuation mostly restricted to software firms 
• Non cyclic intermittent business pattern 
• Scalable but not regular flow business – slow 
• Economic downturn a catalyst to the business 
• High calibre manpower requirements high cost too ! 
12/12/14 13
VALUATION INDIAN OVERVIEW – IP VALUATIONS IN 
INDIA- LIST OF ASSETS 
• Stock & bond instruments 
• Subscription lists 
• Supplier contracts 
• Technical & specialty Libraries 
• Technical documentation 
• Technology sharing agreements 
• Title plants 
• Trade secrets 
• Trained & assembles workforce 
• Trademark and trade names 
• Training manuals 
• Use rights – air, water, land 
Proposals outstanding 
• Proprietary computer 
software 
• Proprietary processes 
• Proprietary products 
• Proprietary technology 
• Publications 
• Retail shelf space 
• Royalty agreements 
• Schematics & diagrams 
• Securities portfolios 
• Security interests 
• Shareholder agreements 
• Solicitation rights 
12/12/14 14
INTERNATIONAL VALUATION STANDARDS 
COUNCIL 
• ENCOMPASSES THE KEY STANDARDS OF 
• VALUATION 
• • IVS FRAME WORK 
• • GENERAL STANDARDS 
• • IVS 101- SCOPE OF WORK –General principle 
• requirements ,changes to scope of work.effective date . 
• • IVS-102- IMPLEMENTATION –Investigations, Valuation 
• Approaches, Valuation record ,Effective Date . 
• • IVS – 103 REPORTING – guidelines , contents & date 
• • ASSET STANDARDS 
• • IVS 200- Businesses and Business interests –Business info 
• ,ownership rights ,valuation approaches ,market approach 
• ,income approach. 
• • IVS210- Intangible assets ,characteristics ,relief from royalty 
• method,premium profits method,Excess earnings method . 
• • IVS 220 -plant and equipment ownership rights ,valuation 
• approaches ,market approach ,income approach. 
12/12/14 15
INTERNATIONAL VALUATION STANDARDS 
COUNCIL 
• WEBSITE: WWW.IVSC.ORG 
• • EMAIL: IVSC@IVSC.ORG 
• • INTERNATIONAL VALUATION STANDARDS BOARD 
• (IVSB) 
• • IVSC STANDARDS 2007 SUPERSEDED BY IVSC 
• STANDARDS 2011 ELIMINATING REPITITIONS . 
• • BASIS OF THESE STANDARDS ARE ON IFRS 3 . 
• • ALL FIELDS OF VALUATIONS COVERED UNDER THE 
• IVSC STANDARDS 2011. 
12/12/14 16
INTERNATIONAL VALUATION STANDARDS 
COUNCIL 
• • IVS 230- real property interests 
• • IVS 233 - Investment property valuations under 
• constructions 
• • IVS 250- Financial instruments 
• • VALUATIONS APPLICATIONS – 
• • IVS 300 – Valuations for financial reporting 
• • IVS 310 - Valuations of real property Interests for secure 
• lending 
12/12/14 17
ROLE OF IBA AND NODAL AGENCIES 
• IBA HAND BOOK SPECIFIES THE FOLLOWING 
• • Purpose of Valuation and Appointment of Valuers 
• • 1.2 Criteria for Empanelment of Valuers 
• • a) Educational Qualifications and Previous Work Experience 
• • b) Minimum Age Requirement 
• • c) Membership of Professional Bodies 
• • d) Categories of Valuers 
• • e) Registration with Government 
• • f) References 
• • g) Other Conditions 
• • 1.3 Duration of Empanelment 
• • 1.4 Removal 
• • 1.5 Re-Empanelment 
• • 1.6 Professional Fees 
• • 1.7 Compliance of Standards and Procedures 
12/12/14 18
ROLE OF IBA AND NODAL AGENCIES 
• 1.8 Independence and Objectivity 
• 1.9 Obligations of Banks and HFIs 
• 1.10 Continuing Education 
• 1.11 Date of Effect 
• RICS RED BOOK - Copy circulated 
12/12/14 19
VALUATION OF PLANT AND MACHINERY 
• • GAMUT IS LARGE WE RESTRICT OURSELVES TO AN 
• INTERESTING AND FASTEST GROWING MACHINERY 
• SEGMENT IN INDIA . 
• • MOBILE ASSETS - CONSTRUCTION AND MINING 
• EQUIPMENTS INDUSTRY 
• • The Indian Construction sector growing at an average 
• rate of 7% per annum despite recession 
• • Accounts for 6% of the GDP. 
• • Is the Second largest Employer. 
• • Major employment generators in the rural areas 
• • Absorbs Skilled, Semi-Skilled and Unskilled workers. 
• • Construction accounts for 60-70% of the infrastructure 
• project cost. 
12/12/14 20
VALUATION OF PLANT AND MACHINERY 
• IMMOVABLE AND MOBILE PLANT AND MACHINERY VALUATIONS 
• Key components 
• • Domain expertise desired 
• • Mere financial valuation a pitfall. 
• • Visual evidence asset inspection by an expert a must 
• • Brand value 
• • Mostly market approach but cost approach and 
• income approach on non standard assets 
• • Gamut- includes mechanical, chemical ,electro mechanical and a combined 
knowledge of all branches of engineering including electronics and computer 
science . 
12/12/14 21
CONSTRUCTION EQUIPMENT INDUSTRY IN INDIA 
• The present size of the market is approx $ 2.3 billion 
• •Expected to grow to annual sales of $ 6.2 billion in 2014 
• •IBEF ICE report, March 2013- Copy enclosed 
• •In FY 2013, most financiers have reported 20% de-growth 
12/12/14 22
Market de-growth of Backhoe loaders industry in India 
BHL JAN-SEPT APR-SEPT 
MANUFACT 
URER 2012 2013 % 2012 2013 % 
JCB 16092 13996 -13% 9427 8210 -13% 
CNH 2236 1869 -16% 1329 1112 -16% 
TEREX 1107 834 -25% 679 514 -24% 
TELCON 965 657 -32% 542 390 -28% 
ESCORTS 830 651 -22% 457 369 -19% 
CAT 1136 1081 -5% 735 653 -11% 
M&M 666 725 9% 345 478 39% 
ACE 291 213 -27% 127 117 -8% 
ALJD 448 830 85% 302 486 61% 
12/12/14 23
Market de-growthofExcavators industry in India 
EXCAVATO 
R JAN-SEPT APR-SEPT 
MANUFACT 
URER 2012 2013 % 2012 2013 % 
TELCON 3582 2670 -25% 1972 1566 -21% 
L&T 
KOMATSU 2346 1358 -42% 1374 695 -49% 
HYUNDAI 1845 1349 -27% 1204 881 -27% 
JCB 982 1011 3% 609 623 2% 
VOLVO 788 564 -28% 520 346 -33% 
KOBELCO 643 571 -11% 399 371 -7% 
DOOSAN 200 197 -2% 113 141 25% 
CAT 121 101 -17% 64 80 25% 
SANY 158 190 20% 101 136 35% 
12/12/14 24
CONSTRUCTION EQUIPMENT FINANCING PLAYERS – DEGROWTH 
Fy(fig in Cr) 2009-10 
Market 
Share 2010-11 
Market 
Share 2011-12 
Market 
Share 12-13 (HI) 
Market 
Share 
SREI BNP 5500 32% 7824 33% 29% 2246 27% 
HDFC 2350 14% 3000 13% 13% 896 11% 
L&T 1450 9% 1900 8% 9% 496 6% 
TATA 
CAPITAL 1425 8% 1800 8% 7% 781 9% 
MAGMA 1415 8% 1200 5% 6% 481 6% 
KOTAK 675 4% 1250 5% 4% 158 2% 
INDUSIND 575 3% 1150 5% 9% 707 8% 
RELIANCE 450 3% 600 3% 2% 267 3% 
CITI 400 2% 300 1% 3% 4% 
RELIGARE 300 2% 500 2% 
SHRIRAM 700 3% 8% 9% 
BAJAJ 700 3% 2% 1% 
ICICI 750 3% 4% 5% 
SUNDARAM 3% 6% 
HDB 3% 
OTHERS 15% 8% 
12/12/14 25
Acquiring construction equipment basics in India 
• Owning option 
• Own with equity 
• CE business is capital intensive– substantial investment needed in both 
fixed assets and working capital 
• Ifequityisinvested,equityquicklygetsblockedinbusiness,leavingbusinessdryof 
working capital 
• Hence, leverage iswell accepted norm in the business use borrowed capital for 
(an investment), expecting the profits made to be greater than the interest 
payable. 
• Borrowing option 
• •Medium term rental option 
• •Short term rental option 
• •Leasing option 
12/12/14 26
Key features of construction equipment financing needs 
• Medium term financing 
• pay-backperiodformostequipmentwouldbe3-5years 
• Generally speaking, an operator earns from the asset to pay for it 
• Asset-backedfinancingwithcashoutflowsconnectedwithcashflowsfromtheassetistheno 
rminthebusiness 
• Disposal ofassets after a few years 
• In case of small operators,advisory support on choice of equipment may also 
be necessary 
12/12/14 27
Providers of CE financing 
• •Banks 
• •NBFCs 
• Asset finance companies 
• Infrastructurefinancecompanies 
• Leasingcompanies 
• Equipmentrenting companies 
• Externalcommercial lenders 
• Supplier’scredit 
• Buyer’scredit 
• ECB 
• Crossborder leasing option 
• Operatingl ease from out of India 
• Financial leasefromoutofIndia 
12/12/14 28
Forms of financing 
• End-to-end solution providers 
• Fromacquisition,toprovision,totraining,tomaintenance,tobuybackofuse 
dequipment 
• ▫Ideal forleadingsuppliers/vendors 
• •Terml oan 
• •Hirepurchase 
• •Financial lease 
• •Operating lease 
• •Conditional sale 
• •Equipment rental 
• Presentlyonlyabout2-5%ofthemarket,butexpectedtogrowsignificantly 
• Lots ofsmall andmediumplayers inequipmentrentalmarket 
• •Supplier’s credit 
• •Buyer’s credit 
12/12/14 29
Devising a proper funding plan 
• Do understand that default is very costly 
• •Therefore,thefundingplanshouldensurethecashflowsfromtheassetwill 
besufficienttopaytheinstalments 
• •Other free cashflowsisoftenamyth 
• ▫Hence, cashflowsf romtheassetmostrelenvant 
• •Two important parametersforeveryfunding plan 
• ▫LTVratio 
• Yes,itisimportanttoconserveequity,butahigherLTVratiomeansmoreE 
MIs,puttingburdenontheDSCRratio 
• Debtservicecoverageratio 
• Functionof 
• LTVratio 
• Fundingtenure 
• Don’tagreetoaggressivepaybackperiods–ensureatleastaDSCRof1.33- 
1.25 
12/12/14 30
Typical structure of a loan product 
• Downpayment10-20% 
• •Tenure3-4years 
• •Full payout product 
• •Problems ina typical full payout loan contract: 
• ▫EMIsaretoohighforthepresentmarketscenario 
• ▫Collateraldeficitintheinitialfewmonths;collateralsurplusinthelaterparto 
fthecontract 
12/12/14 31
Major risks in Asset valuations 
• CREDIT RISK – BORROWER ,PEST ANALYSIS 
• RV RISK RESIDUAL RISK - VALUATION OF USED ASSET PLAYS 
A MAJOR ROLE 
• UNBUNDLING THE TWO IS IMPORTANT ,THEN TAKING AN 
EXPOSURE ON THE ASSET VALUES NOT A PROBLEM. 
12/12/14 32
PART C DOSSIER ON CONSTRUCTION EQUIPMENT S IN INDIA 
• OVERVIEW 
• EVOLUTION 
12/12/14 33
INDIAN CONSTRUCTION SECTOR SCENARIO 
• The Indian Construction sector growing at an average rate of 7% per annum. 
• Accounts for 6% of the GDP. 
• Is the Second largest Employer. 
• Major employment generators in the rural areas 
• Absorbs Skilled, Semi-Skilled and Unskilled workers. 
• Construction accounts for 60-70% of the infrastructure project cost. 
12/12/14 34
OVERVIEW,EVOLUTION 
• India is the only Developing Country, which is totally Self-Reliant in 
such highly sophisticated equipment. 
• India has only a few, mainly medium and large companies in the 
organized sector who manufacture these. 
• SME’s is restricted to manufacture of components and some sub-assemblies. 
• Before 1960s, domestic requirements of mining and construction 
equipment were entirely met by imports. 
• Domestic production began in 1964 with the setting up of Bharat 
Earthmovers Ltd (BEML). 
• In the private sector, the Hindustan Motors’ Earthmoving Equipment 
Division, was established in 1969. 
12/12/14 35
Small/Non 
Existent. 
Government 
as 
Producer/Bu 
yers 
Public 
Sector 
Player 
Created by 
Government 
Dozer, Dump 
Truck, 
Mechanical 
Excavator, 
Cranes 
1960 & 1970s 
Market 
Industr 
y 
Trends 
Product 
s 
Growth of 
Market from 
Mining/Infrastru 
cture Activities 
Serious Private 
Sector 
Participants(L & 
T ,Telco) 
Hydraulic 
Excavator, 
Mining 
Equipment 
1980s 
Opening of 
economy 
increase in 
constructio 
n activities 
Advent of 
Foreign 
Player 
Specialised 
Equipment 
Rapid 
Increase in 
infrastructur 
e Investment 
Capacity 
Enhanceme 
nt 
Advent of 
Larger 
Equipment 
1990s 2000s 
Initiative to 
strengthen 
the Industry 
Consolidatio 
n of Players , 
Export led 
Growth 
Design/Devel 
op products 
for Global 
Market 
Future 
EVOLUTION OF CONSTRUCTION AND MINING MACHINERY INDUSTRY 
12/12/14 36
INDIAN EARTHMOVING & CONSTRUCTION EQUIPMENT INDUSTRY : 
CURRENT STATUS 
• Expanding at Compounded Annual Growth Rate(CAGR) of 40% in last 
three years. 
• Having Market of US$2.3 Billion 
• Organized sector accounts for 55% of the Earthmoving and 
Construction Equipment. 
• About 71% of this industry comprises of public limited companies and 
29% lies in private limited. 
• Indian Operation can be used to fulfill the demand of South Asia and 
South East Asia. 
12/12/14 37
TECHNOLOGY STATUS IN INDIA 
• Construction Equipment , technology leaders are: Komatsu, Caterpillar, Hitachi, 
Volvo, JCB and many more. 
• Mining Equipment, technology leaders are: Atlas Copco, Liebhrr, Joy Mining 
Machinery, Hitachi 
• Construction Equipment Sector is in intermediate stage of development. 
• Advancement in technology have also increased the size of haul truck and rope 
shovel. 
12/12/14 38
GROWTH PROSPECT IN INDIA 
• New techniques and technology in various construction projects . 
• Key Infrastructure Projects are Road & Highways, Bridges & Urban Construction, 
Power Projects, Railways, Airport-Modernization, Real Estate development. 
12/12/14 39
TRENDS ARE DRIVING CONSTRUCTION EQUIPMENT 
EVOLUTION 
1. Unprecedented Infrastructure – Estimates indicate planned investment of 
approximately US$ 1 trillion over next 8 years in infrastructure. 
2. Continued Dominance of Price Focused and Value Focused Customers: 70% – 80% 
of customer in India are price and value focused. Dominance is likely to continue 
even up to 2020 
3. Expanding Presence and Engagement of Global OEM’s in India: OEM’s are attracted 
by one of the world’s fastest growing construction equipment market. 
4. Increasing export opportunities: Sourcing of components, aggregates and 
equipment is likely to accelerate due to increasing cost pressures in developed 
markets. 
5. The off-shoring of engineering and design (E&D) services 
12/12/14 40
DOSSIER OF CONSTRUCTION AND MINING EQUIPMENTS 
and Equipment 
• Mining Machinery 
1. Power Shovels 
2. Cranes 
1. Excavators 
3. Concrete Mixers 
2. Drills 
4. Dredging Machinery 
3. Feeder Breakers 
5. Articulated Dump Trucks 
4. Crushers 
6. Asphalt Finishers 
7. Backhoe Loaders 
8. Crawler Dozers 
9. Crawler Excavators 
10. Wheel Excavators 
11. Scrapers 
12. Earth Moving Compactors 
13. Skid Steer Loaders 
12/12/14 41
PRODUCTIVITY MACHINES (AVERAGE WORKING HRS/DAY 10-15 
HOURS) 
Equipment Functions Average Economic Life Refinancing Cycle 
Backhoe Loader Earth cutting, Road, 
Earthmoving 
10 years Max twice in life 
time 
Wheel Loader Loading 10 years Once in life cycle 
Excavators Earth cutting, removal 15-20 years Twice in life cycle 
Compactors (Soil 
and Asphalt) 
Soil and Asphalt compaction 15-20 years Twice in life cycle 
Skid Steer Loaders Multiple applications 10 years Once 
Dumpers Loading/unloading 10-12 years Two–Three times 
Tippers Loading/unloading 10-12years Two–Three times 
12/12/14 42
SUPPORT MACHINES / EQUIPMENTS (AVERAGE WORKING HRS/DAY 4 
HOURS) 
Equipment Functions Average 
Economic Life 
Refinancing Cycle 
Graders / Dozers Grading of Earth Haul 10-20 years Twice in life cycle 
Cranes 
a) Mobile Hydraulic Crane 
(10T – 80T) 
Site Work, Heavy 
components lifting 
30-35 years 4 times in a life cycle 
within refurbishment 
b) Crawler Crane (30 T – 
80 T) – Mechanical & 
Hydraulic 
Site Work, Heavy 
Components lifting 
30-35 years 4 times in a life cycle 
within refurbishment 
12/12/14 43
GENERAL TECHNICAL ANALYSIS WHILE VALUING A CE ASSET 
• While valuing an equipment the health of each components / sub-assembly 
/ assembly needs to be checked in operational conditions. 
• Pre – requisite of valuation exercise includes: 
1. Site Visit: It is mandatory that a site visit be made where the 
equipment is parked with chassis imprints on newspaper as 
documentary evidence in daytime 
2. Photography: At least 3 to 4 photographs at various angles needs to 
be taken. Digitally encrypted photos with GPS date and time 
3. Maintenance Log Book: Regular maintenance schedules, preventive 
maintenance chart, oil changes need to be noted down. Accidental 
history needs a noting down 
12/12/14 44
GENERAL TECHNICAL ANALYSIS WHILE VALUING A CE ASSET 
• After pre – requisite exercise we have to cover the technical aspect. It include 
following points to be considered: 
1. Operator Cabin / Monitor, control lever 
2. Engine / Auto-Electric System 
3. Other aspects which we consider for machines is given in the slides further. 
12/12/14 45
COMMERCIAL DOCUMENTATION FOR VALUATION 
1. Invoice 
2. Engine Imprint 
3. Road Tax Form 
4. The title of equipment 
5. A vahan status incase of a registered asset 
6. Import documents - more relevant to cranes pavers - B/L, TR6 
CHALLAN ,CE CERTIFICATE OF COUNTRY OF ORIGIN LOAD TEST 
CERTIFICATE IN CASE OF CRANES 
12/12/14 46
PITFALLS OF VALUATION OF CONSTRUCTION AND MINING MACHINERY 
The valuer should be careful and should not succumb under any pressure in 
valuation of the finance company. The point to be given importance at the time of 
valuation are: 
1.Equipment non operative: An equipment for refinance should be and must be in 
operative condition. 
2.Under maintenance or refurbishment: Asset need to valued twice. 
3.Photography prohibition: In absence of the photography the valuers observation 
is final. AIRPORTS ,PORT RESTRICTED AREAS 
4.ABL’s need the report yesterday: A hurried report gives huge chances of errors. 
5.Technology obsolescence: Valuer should be well informed about the technology 
and the degradation of the value therein. 
12/12/14 47
KEY POINTS OF VALUATION OF CONSTRUCTION AND MINING 
MACHINERY 
• EVERY ASSET IS DIFERRENT APPROACH SHOULD BE DIFFERENT 
• APLICATION STUDY 
• USAGE PATTERN NO OF HOURS OF ACTUAL USAGE PER MANDAY 
• HISTORY OF O&M 
• BRAND VALUE 
• CURRENT MARKET VALUE 
• COST OF SPARE PARTS 
• REFURBISHMENT COST 
• DISTRESS SALE VALUE 
• AUCTION /NEGOTIATED SALE VALUE 
12/12/14 48
BACKHOE LOADER 
A backhoe, also called a rear 
actor or back actor, is a piece of 
excavating equipment or digger 
consisting of a digging bucket 
on the end of a two-part 
articulated arm. They are 
typically mounted on the back 
of a tractor or front loader. 
12/12/14 49
BACKHOE LOADERS APPLICATIONS AND ASSET HEALTH FOR 
VALUATION 
Applications Study 
•It is the most suitable machine for digging below the machine level, such as, 
trenches, footings, basements etc. 
•It can be efficiently used to dress or trim the surface avoiding the use of 
manual effort for dressing the excavated the surface. 
•Rentals FOR EARTH MOVING 
•Asset health 
•Brand name 
•Hours of work per day 
•O&M cost - 5 to 7 percent for JCB 
In the first year 
•Swing cylinder life most important 
•Engine condition blow by 
12/12/14 50
BACKHOE LOADER VALUATION CHECKLIST FOR VALUE AND OVER 
VALUE 
• Application usage – bucket life , cylinder life ,engine life - 
corosiove environment , abrasive application – sea shore , chemical 
fertilizer plant ,coke handling, rock quartzite application 
• Number of working hours per day - Rentals 15 18 HOURS 
• Brands - JCB, TELCON JD, CASE , ECEL, ACE TEREX 
• NEW TO USED RATIO SALES - 20 TO 1 
• O&M COST YEAR ONE 5 TO 7 PERCENT OF THE EQUIPMENT 
COST YEAR THREE 12 TO 15 % OF EQUIPCOST 
• FUEL CONSUMPTION HISTORY - HP/13 
• Normal depreciation 10 to 12 percent high usage 20 % per annum 
• Max refinance two turns / cycle 
• Value addition calculation - engine overhaul replacement , pumps 
cylinders 
• Localized market pull and support structure with non uniform 
value 
12/12/14 51
BACKHOE LOADER VALUATION CHECKLIST 
• VALUE VS OVER VALUE IN A BACKHOE LOADER- INSURANCE 
AND IDV TRAP 
• WDV ,SLM OR GRID A LAZY CREDIT MANAGERS TOOLS 
• WEIGHTAGE OF VINTAGE ,BRAND PULL & ASSET CONDITION 
• WEIGHTAGE BRAND PULL(INCLUDING AFTERMARKET SUPPORT ) 
25% 
• ASSET CONDITION 45% 
• USAGE 10 % 
• APPLICATION 10% 
• LOCAL MARKET PULL 5% 
• OTHER FACTORS 5% 
• BUY BACK GURANTEE A DERISKER 
12/12/14 52
EXCAVATORS 
Excavators are heavy construction 
equipment consisting of a boom, stick, 
bucket and cab on a rotating platform 
(known as the "house"). 
The house sits atop an undercarriage 
with tracks or wheels. 
The classification is on tonnage 
>30 tonne class for mining application 
12/12/14 53
APPLICATIONS OF EXCAVATORS AND ASSET HEALTH FOR 
VALUATION 
• Excavators are used in many ways: 
– Digging of trenches, holes, foundations 
– Material handling 
– Brush cutting with hydraulic attachments 
– Forestry work 
– Demolition 
– General grading/landscaping 
– Heavy lift, e.g. lifting and placing of pipes 
– Mining, especially, but not only open-pit mining 
– River dredging 
– Driving piles, in conjunction with a pile driver 
Excavator Final Drive Line 
12/12/14 54
EXCAVATOR ASSET HEALTH FOR VALUATION 
1. Excavator Boom and Stick Arm & Bucket Condition 
2. Undercarriage Track pads 
3. Turn Table OR SLEW RING 
4. ENGINE health 
12/12/14 55
12/12/14 56
12/12/14 57
EXCAVATOR VALUATION CHECKLIST FOR VALUE AND 
OVER VALUE 
•Number of working hours per day - Rentals 15 18 HOURS 
Brands - JCB, TELCON JD, CASE , ECEL, ACE 
NEW TO USED RATIO SALES - 30 TO 1 
O&M COST YEAR ONE 7 TO 10 PERCENT OF THE EQUIPMENT 
COST YEAR THREE 15 TO 21 % OF EQUIPCOST 
FUEL CONSUMPTION HISTORY - HP/13 
Normal depreciation 10 to 12 percent high usage 22 % per 
annum 
Max refinance three turns / cycle 
Value addition calculation - engine overhaul replacement , pumps 
cylinders 
Localized market pull and support structure with uniform value 
12/12/14 58
VALUATION EXCAVATORS CHECKLIST FOR VALUE AND OVER VALUE 
• VALUE VS OVER VALUE IN A EXCAVATOR - INSURANCE AND IDV 
TRAP 
• WEIGHTAGE OF VINTAGE ,BRAND PULL & ASSET CONDITION 
• WEIGHTAGE BRAND PULL(INCLUDING AFTERMARKET SUPPORT ) 
25% 
• ASSET CONDITION 35% 
• USAGE 10 % 
• APPLICATION 15% 
• LOCAL MARKET PULL 3% 
• OTHER FACTORS 5% 
• BUY BACK A DERISKER 
12/12/14 59
WE VALUE EVERYTHING UNDER THE SUN 10/14/2013 44 
60
• AICH APPRAISERSAUCTIONERS AND VALUERS 
We value every thing under the sun 
• Partnership firm Started in August 2009 
•Valuation Services for Movable And Immovable Assets Construction 
and Mining ,Medical Equipments for asset based lenders banks and 
financial institutions 
•Consulting Partnership With American Appraisals Pvt. Ltd. 
•Over 6000 assets valued in three years with a value of around 
3000crores INR 
•MEMBER COMPANY OF CII ,BNCCI AIMA &IGCC 
WE VALUE EVERYTHING UNDER THE SUN 10/14/2013 45 
61
AICH APPRAISERSAUCTIONERS AND VALUERS 
We value every thing under the sun 
•EMPANELMENTS 
WE VALUE EVERYTHING UNDER THE SUN 47 
62
AICH APPRAISERSAUCTIONERS AND VALUERS 
We value every thing under the sun 
EMPANELMENTS 
WE VALUE EVERYTHING UNDER THE SUN 10/14/2013 46 
63
•200% Year on year Growthboth 
bottomline and topline 
•Strong credit rating 
•Qualtrics Rated top 3 in India in Valuation 
Services 
•Finalist forAIMA -Dr J.S Juneja Award for 
Innovation and creativity for MSME 
enterprises for 2012 -2013 and ICICI - 
CNBC India Emerging India Awards 2013 
LUE EVERYTHING UNDER THE SUN 10/14/2013 48 
64 
AICH APPRAISERSAUCTIONERS AND VALUERS
WE VALUE EVERYTHING UNDER THE SUN 10/14/2013 49 
65
• KATAICH INFRACORE ENGINEERING PVT. LTD. 
•Started with Changling construction machinery distribution and Nawa 
crushers 
•Year on year growth 200% 
•Revenue of ½ million USD in 2011-2012 
•Shantui heavy machinery dealership 
•Spare parts supplier company 
•Started as the flagship company and diversified 
WE VALUE EVERYTHING UNDER THE SUN 10/14/2013 50 
66
• 
AICH MINING RESOURCES PVT. LTD. 
Opencast & Underground Mining of ferrous & non ferrous metal & non 
metal mines concept to commisioning projects 
•Opencast & Underground Equipment Selection, installation 
•Concept to commissioning Technical Consulting & Mining Consulting 
•Coal Washers Consulting 
•CHF Concept to Concept to commissioning projects 
WE VALUE EVERYTHING UNDER THE SUN 10/14/2013 51 
67
• 
AICH MINING RESOURCES PVT. LTD. 
Opencast & Underground Mining of ferrous & non ferrous metal & non 
metal mines concept to commisioning projects 
•Opencast & Underground Equipment Selection, installation 
•Concept to commissioning Technical Consulting & Mining Consulting 
•Coal Washers Consulting 
•CHF Concept to Concept to commissioning projects 
WE VALUE EVERYTHING UNDER THE SUN 10/14/2013 52 
68
A BREIF PROFILE OF INDRANIL 
AICH F ABOUT INDRANIL AICH 
Chequered career of 18+ years in the industry out of which 14 years 
in multinationals of repute 
Worked in Titagarh Wagons Ltd GoIndustry - Dovebid (Formerly 
Henry Butcher) ,UT Limited (JV between Usha Group and 
Telehoist of U.K.) Ingersoll Rand India Ltd,TIL (Tractors India 
Limited) -Jayashree Textiles, Indian Rayon Group -Rishra. 
Award winning Production engineer with MBA from IIFT kolkata . 
Publications and teaching assignments in several institutions of 
repute . 
WE VALUE EVERYTHING UNDER THE SUN 10/14/2013 53 
69
A BRIEF ABOUT INDRANIL AICH 
PROFESSIONAL MEMBERSHIPS 
International Memberships 
Honorary Life member of Royal Institute of Chartered Surveyors (RICS), 
London. 
Life member American Society of Mechnical Engineers USA 
Life member of the Mining ,geological and metallurgical Society of India . 
Life Member of Operational Society of India, Quality Circle Forum of India, 
Systems Dynamics Society of India 
Life Member of Institution of Engineers (Membership No.M-132302-9) and 
Chartered Engineer from Institution of Engineers (AM 092132-5). 
Approved valuer (Registration No.18328) Category - Production & Industrial 
Engineering and Fellow and Life Member of Institution of Valuers. 
Member of Indian Council of Arbitration, New Delhi an organization of FICCI 
and Ministry of Commerce.Member of Practicing Valuers Association of India 
WE VALUE EVERYTHING UNDER THE SUN 10/14/2013 54 
70
A BRIEF ABOUT INDRANIL AICH 
A BRIEF ABOUT INDRANIL AICH 
INDUSTRY CHAMBER MEMBERSHIPS 
Member of Confederation of India Industry Eastern Region 
Member of MSME National council CII 
Member of West bengal state council 
Member of the economic affairs ,taxation and finance subcommittee 
Member of the Safety subcommittee 
Member of the MSME subcommittee 
WE VALUE EVERYTHING UNDER THE SUN 10/14/2013 55 
71
You can reach me @ 
• indranilaich@gmail.com 
• indranilaich@outlook.com 
• Mobile 
+919831088204/+919038088204 
DREAM>BELIEVE>PURSUE 
Friday, December 12, 2014 72

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Reliance capital limited presentation on valuations of construction and mining equipments

  • 1. VALUATION OF CONSTRUCTION AND MINING EQUIPMENTS AN INDIAN PERSPECTIVE PRESENTED BY:INDRANIL AICH Reliance Capital Limited 12/12/14 1
  • 2. MODULES OF PRESENTATION • Valuations overview-Key references ,need and concepts . • Valuation's Indian scenario - types of valuers, qualifications, apex bodies • global and Indian.IP valuations in India • Overview of International valuations standards (IVSC) • Role of IBA and nodal agencies in India • Valuation of mobile assets - Plant & Machinery - classification and overview • CE financing in India patterns issues risks • Evolution technology trends in construction equipment industry • Construction equipments classification and valuation • Backhoe loaders and excavators valuations value factors over value risks 12/12/14 2
  • 3. VALUATIONS OVERVIEW – WHAT IS VALUE? • Depends on who is asking and why • Generally an economic concept where what a buyer is willing to pay and what a seller is willing to take overlap. – Implies transferability. – Implies agreeable to both parties. • In the real world it is a range, not a point 12/12/14 3
  • 4. VALUATIONS OVERVIEW- DEFINITION OF VALUATION • VALUATION DEFINED • A quantitative representation of monetary values inherent in a • business / entity, built by the past efforts, capable of • generating economic benefits in the future. • Enterprise value is the value of the financial instruments • representing the ownership interests in an entity plus net • financial debt of the entity. • Fair value is an amount for which an asset could be • exchanged between willing and knowledgeable parties in an • arms length transaction. • Value of an entity is a sum of parts of a business together adding up • resulting the streams if economic returns and value of an enterprise can be more than sum of parts 12/12/14 4
  • 6. • Immovable Assets • Classification • •Non marketable assets – hospital , • college, university ,monument • •Marketable – nondynamic – flats • ,bunglow, residencia l houses. • •Marketable – dynamic – service • apartments ,hotels malls, resorts 12/12/14 6
  • 7. VALUATIONS INDIAN SCENARIO – REGISTRATION AS VALUER • • Application for registration as valuer in Govt of India. • • An application for registration as a valuer under section 34AB shall be in FormN and shall be verified in the manner specified therein and shall beaccompanied by a fee of Rs.1000 which shall not be refunded if the application • is rejected. • • No person in service is allowed to obtain the registration in the above • form in India. • • For details vide – www.laws4india.com/tax • • More on Hand book of on Policy, Standards and Procedures for Real EstateValuation by Banks and HFIs in India copy circulated youpublished by the Indian Bankers Association . 12/12/14 7
  • 8. VALUATION INDIAN PERSPECTIVE • IBA Hand book specifies - • • It shall be necessary that • • Every valuer empanelled by banks / HFIs in India be a member of • • any one of the undermentioned associations namely : • • - Institution of Valuers ( IOV ) • • - Institution of Surveyors ( Valuation Branch ) ( IOS ) • • - Institution of Government Approved Valuers ( IGAV ) • • - Practicing Valuers Association of India ( PVAI ) • • - Centre for Valuation Studies, Research and Training ( CVSRT ) • • - Royal Institute of Chartered Surveyors, India Chapter ( RICS ) • • - American Society of Appraisers, USA ( ASA ) • • - Appraisal Institute, USA ( AI ) 12/12/14 8
  • 9. VALUATION INDIAN OVERVIEW – EDUCATION IN INDIA • Indian institute of loss surveyors & insurance surveyors – membership thruexamination . Vide www.iiisla.org (post graduation ) • • IRDA – Insurance Regulatory Development Authority – Membership thru examination.vide website – www.irda.org( post graduation) • Valuers in India go for these qualifications to enhance the work sphere but are actually survey related • UPCOMING - International Institute of Marine Surveyors UK LONDON for Marine survey • and valuations opened chapter in India • Short term courses by ICSI ,ICAI on valuations 12/12/14 9
  • 10. VALUATION INDIAN OVERVIEW – VALUERS SPREAD IN INDIA • Total of 22000 valuers in India who are registered ( wealth tax , IOV,PVAI put together). • • Market type – unorganised local players mainly in district level except a few • companies . • • Very few have all services under one roof . • • Companies bill to give an enormous impetuous in India . • • Spread of valuers in India • • 80 % of valuers in india are from real estate sector • • 10 % of valuers in Plant and machinery • • 10 % others 12/12/14 10
  • 11. VALUATION INDIAN OVERVIEW – REVENUE STRUCTURE FOR VALUERS • Total market size approx. Rs 1000 crores expected to reach Rs 5000 crores inby • 2016 . • • Source of data institute of valuers, personal interviews with the officials of IOV ,PVAI • ,company officials.( conservative estimate ) • • No organized publication on the revenue generated available in INDIA. The data is • basis the income tax deptt estimate on the returns filed &cross checked. • • Fees grid suggested by IT department prevalent with Banks and Financial institutions . 12/12/14 11
  • 12. VALUATIONS SEGMENTWISE MOVABLE ASSETS REVENUE MODEL • Valuation fees of mobile fuel driven assets – high volume low price realization model-non cyclic ,voluminous , strong local network and presence required. • Valuation fees of plant machinery , hi tech machinery low volume and medium price realisation. Model – cyclic , high job content in each job and local presence not much required. • Movable Properties /Assets Valuations revenue generating agencies • Mainly borne by banks, business through banks ,NBFC’s & ABL’s. • Valuations required for Refinance , Repo assets , top up loans , additional loans to industries , sell off , auctions mainly. 12/12/14 12
  • 13. VALUATION INDIAN OVERVIEW – IP VALUATIONS IN INDIA • Sunrise segment in India • Mostly dominated by BIG 4 firms • In India valuation mostly restricted to software firms • Non cyclic intermittent business pattern • Scalable but not regular flow business – slow • Economic downturn a catalyst to the business • High calibre manpower requirements high cost too ! 12/12/14 13
  • 14. VALUATION INDIAN OVERVIEW – IP VALUATIONS IN INDIA- LIST OF ASSETS • Stock & bond instruments • Subscription lists • Supplier contracts • Technical & specialty Libraries • Technical documentation • Technology sharing agreements • Title plants • Trade secrets • Trained & assembles workforce • Trademark and trade names • Training manuals • Use rights – air, water, land Proposals outstanding • Proprietary computer software • Proprietary processes • Proprietary products • Proprietary technology • Publications • Retail shelf space • Royalty agreements • Schematics & diagrams • Securities portfolios • Security interests • Shareholder agreements • Solicitation rights 12/12/14 14
  • 15. INTERNATIONAL VALUATION STANDARDS COUNCIL • ENCOMPASSES THE KEY STANDARDS OF • VALUATION • • IVS FRAME WORK • • GENERAL STANDARDS • • IVS 101- SCOPE OF WORK –General principle • requirements ,changes to scope of work.effective date . • • IVS-102- IMPLEMENTATION –Investigations, Valuation • Approaches, Valuation record ,Effective Date . • • IVS – 103 REPORTING – guidelines , contents & date • • ASSET STANDARDS • • IVS 200- Businesses and Business interests –Business info • ,ownership rights ,valuation approaches ,market approach • ,income approach. • • IVS210- Intangible assets ,characteristics ,relief from royalty • method,premium profits method,Excess earnings method . • • IVS 220 -plant and equipment ownership rights ,valuation • approaches ,market approach ,income approach. 12/12/14 15
  • 16. INTERNATIONAL VALUATION STANDARDS COUNCIL • WEBSITE: WWW.IVSC.ORG • • EMAIL: IVSC@IVSC.ORG • • INTERNATIONAL VALUATION STANDARDS BOARD • (IVSB) • • IVSC STANDARDS 2007 SUPERSEDED BY IVSC • STANDARDS 2011 ELIMINATING REPITITIONS . • • BASIS OF THESE STANDARDS ARE ON IFRS 3 . • • ALL FIELDS OF VALUATIONS COVERED UNDER THE • IVSC STANDARDS 2011. 12/12/14 16
  • 17. INTERNATIONAL VALUATION STANDARDS COUNCIL • • IVS 230- real property interests • • IVS 233 - Investment property valuations under • constructions • • IVS 250- Financial instruments • • VALUATIONS APPLICATIONS – • • IVS 300 – Valuations for financial reporting • • IVS 310 - Valuations of real property Interests for secure • lending 12/12/14 17
  • 18. ROLE OF IBA AND NODAL AGENCIES • IBA HAND BOOK SPECIFIES THE FOLLOWING • • Purpose of Valuation and Appointment of Valuers • • 1.2 Criteria for Empanelment of Valuers • • a) Educational Qualifications and Previous Work Experience • • b) Minimum Age Requirement • • c) Membership of Professional Bodies • • d) Categories of Valuers • • e) Registration with Government • • f) References • • g) Other Conditions • • 1.3 Duration of Empanelment • • 1.4 Removal • • 1.5 Re-Empanelment • • 1.6 Professional Fees • • 1.7 Compliance of Standards and Procedures 12/12/14 18
  • 19. ROLE OF IBA AND NODAL AGENCIES • 1.8 Independence and Objectivity • 1.9 Obligations of Banks and HFIs • 1.10 Continuing Education • 1.11 Date of Effect • RICS RED BOOK - Copy circulated 12/12/14 19
  • 20. VALUATION OF PLANT AND MACHINERY • • GAMUT IS LARGE WE RESTRICT OURSELVES TO AN • INTERESTING AND FASTEST GROWING MACHINERY • SEGMENT IN INDIA . • • MOBILE ASSETS - CONSTRUCTION AND MINING • EQUIPMENTS INDUSTRY • • The Indian Construction sector growing at an average • rate of 7% per annum despite recession • • Accounts for 6% of the GDP. • • Is the Second largest Employer. • • Major employment generators in the rural areas • • Absorbs Skilled, Semi-Skilled and Unskilled workers. • • Construction accounts for 60-70% of the infrastructure • project cost. 12/12/14 20
  • 21. VALUATION OF PLANT AND MACHINERY • IMMOVABLE AND MOBILE PLANT AND MACHINERY VALUATIONS • Key components • • Domain expertise desired • • Mere financial valuation a pitfall. • • Visual evidence asset inspection by an expert a must • • Brand value • • Mostly market approach but cost approach and • income approach on non standard assets • • Gamut- includes mechanical, chemical ,electro mechanical and a combined knowledge of all branches of engineering including electronics and computer science . 12/12/14 21
  • 22. CONSTRUCTION EQUIPMENT INDUSTRY IN INDIA • The present size of the market is approx $ 2.3 billion • •Expected to grow to annual sales of $ 6.2 billion in 2014 • •IBEF ICE report, March 2013- Copy enclosed • •In FY 2013, most financiers have reported 20% de-growth 12/12/14 22
  • 23. Market de-growth of Backhoe loaders industry in India BHL JAN-SEPT APR-SEPT MANUFACT URER 2012 2013 % 2012 2013 % JCB 16092 13996 -13% 9427 8210 -13% CNH 2236 1869 -16% 1329 1112 -16% TEREX 1107 834 -25% 679 514 -24% TELCON 965 657 -32% 542 390 -28% ESCORTS 830 651 -22% 457 369 -19% CAT 1136 1081 -5% 735 653 -11% M&M 666 725 9% 345 478 39% ACE 291 213 -27% 127 117 -8% ALJD 448 830 85% 302 486 61% 12/12/14 23
  • 24. Market de-growthofExcavators industry in India EXCAVATO R JAN-SEPT APR-SEPT MANUFACT URER 2012 2013 % 2012 2013 % TELCON 3582 2670 -25% 1972 1566 -21% L&T KOMATSU 2346 1358 -42% 1374 695 -49% HYUNDAI 1845 1349 -27% 1204 881 -27% JCB 982 1011 3% 609 623 2% VOLVO 788 564 -28% 520 346 -33% KOBELCO 643 571 -11% 399 371 -7% DOOSAN 200 197 -2% 113 141 25% CAT 121 101 -17% 64 80 25% SANY 158 190 20% 101 136 35% 12/12/14 24
  • 25. CONSTRUCTION EQUIPMENT FINANCING PLAYERS – DEGROWTH Fy(fig in Cr) 2009-10 Market Share 2010-11 Market Share 2011-12 Market Share 12-13 (HI) Market Share SREI BNP 5500 32% 7824 33% 29% 2246 27% HDFC 2350 14% 3000 13% 13% 896 11% L&T 1450 9% 1900 8% 9% 496 6% TATA CAPITAL 1425 8% 1800 8% 7% 781 9% MAGMA 1415 8% 1200 5% 6% 481 6% KOTAK 675 4% 1250 5% 4% 158 2% INDUSIND 575 3% 1150 5% 9% 707 8% RELIANCE 450 3% 600 3% 2% 267 3% CITI 400 2% 300 1% 3% 4% RELIGARE 300 2% 500 2% SHRIRAM 700 3% 8% 9% BAJAJ 700 3% 2% 1% ICICI 750 3% 4% 5% SUNDARAM 3% 6% HDB 3% OTHERS 15% 8% 12/12/14 25
  • 26. Acquiring construction equipment basics in India • Owning option • Own with equity • CE business is capital intensive– substantial investment needed in both fixed assets and working capital • Ifequityisinvested,equityquicklygetsblockedinbusiness,leavingbusinessdryof working capital • Hence, leverage iswell accepted norm in the business use borrowed capital for (an investment), expecting the profits made to be greater than the interest payable. • Borrowing option • •Medium term rental option • •Short term rental option • •Leasing option 12/12/14 26
  • 27. Key features of construction equipment financing needs • Medium term financing • pay-backperiodformostequipmentwouldbe3-5years • Generally speaking, an operator earns from the asset to pay for it • Asset-backedfinancingwithcashoutflowsconnectedwithcashflowsfromtheassetistheno rminthebusiness • Disposal ofassets after a few years • In case of small operators,advisory support on choice of equipment may also be necessary 12/12/14 27
  • 28. Providers of CE financing • •Banks • •NBFCs • Asset finance companies • Infrastructurefinancecompanies • Leasingcompanies • Equipmentrenting companies • Externalcommercial lenders • Supplier’scredit • Buyer’scredit • ECB • Crossborder leasing option • Operatingl ease from out of India • Financial leasefromoutofIndia 12/12/14 28
  • 29. Forms of financing • End-to-end solution providers • Fromacquisition,toprovision,totraining,tomaintenance,tobuybackofuse dequipment • ▫Ideal forleadingsuppliers/vendors • •Terml oan • •Hirepurchase • •Financial lease • •Operating lease • •Conditional sale • •Equipment rental • Presentlyonlyabout2-5%ofthemarket,butexpectedtogrowsignificantly • Lots ofsmall andmediumplayers inequipmentrentalmarket • •Supplier’s credit • •Buyer’s credit 12/12/14 29
  • 30. Devising a proper funding plan • Do understand that default is very costly • •Therefore,thefundingplanshouldensurethecashflowsfromtheassetwill besufficienttopaytheinstalments • •Other free cashflowsisoftenamyth • ▫Hence, cashflowsf romtheassetmostrelenvant • •Two important parametersforeveryfunding plan • ▫LTVratio • Yes,itisimportanttoconserveequity,butahigherLTVratiomeansmoreE MIs,puttingburdenontheDSCRratio • Debtservicecoverageratio • Functionof • LTVratio • Fundingtenure • Don’tagreetoaggressivepaybackperiods–ensureatleastaDSCRof1.33- 1.25 12/12/14 30
  • 31. Typical structure of a loan product • Downpayment10-20% • •Tenure3-4years • •Full payout product • •Problems ina typical full payout loan contract: • ▫EMIsaretoohighforthepresentmarketscenario • ▫Collateraldeficitintheinitialfewmonths;collateralsurplusinthelaterparto fthecontract 12/12/14 31
  • 32. Major risks in Asset valuations • CREDIT RISK – BORROWER ,PEST ANALYSIS • RV RISK RESIDUAL RISK - VALUATION OF USED ASSET PLAYS A MAJOR ROLE • UNBUNDLING THE TWO IS IMPORTANT ,THEN TAKING AN EXPOSURE ON THE ASSET VALUES NOT A PROBLEM. 12/12/14 32
  • 33. PART C DOSSIER ON CONSTRUCTION EQUIPMENT S IN INDIA • OVERVIEW • EVOLUTION 12/12/14 33
  • 34. INDIAN CONSTRUCTION SECTOR SCENARIO • The Indian Construction sector growing at an average rate of 7% per annum. • Accounts for 6% of the GDP. • Is the Second largest Employer. • Major employment generators in the rural areas • Absorbs Skilled, Semi-Skilled and Unskilled workers. • Construction accounts for 60-70% of the infrastructure project cost. 12/12/14 34
  • 35. OVERVIEW,EVOLUTION • India is the only Developing Country, which is totally Self-Reliant in such highly sophisticated equipment. • India has only a few, mainly medium and large companies in the organized sector who manufacture these. • SME’s is restricted to manufacture of components and some sub-assemblies. • Before 1960s, domestic requirements of mining and construction equipment were entirely met by imports. • Domestic production began in 1964 with the setting up of Bharat Earthmovers Ltd (BEML). • In the private sector, the Hindustan Motors’ Earthmoving Equipment Division, was established in 1969. 12/12/14 35
  • 36. Small/Non Existent. Government as Producer/Bu yers Public Sector Player Created by Government Dozer, Dump Truck, Mechanical Excavator, Cranes 1960 & 1970s Market Industr y Trends Product s Growth of Market from Mining/Infrastru cture Activities Serious Private Sector Participants(L & T ,Telco) Hydraulic Excavator, Mining Equipment 1980s Opening of economy increase in constructio n activities Advent of Foreign Player Specialised Equipment Rapid Increase in infrastructur e Investment Capacity Enhanceme nt Advent of Larger Equipment 1990s 2000s Initiative to strengthen the Industry Consolidatio n of Players , Export led Growth Design/Devel op products for Global Market Future EVOLUTION OF CONSTRUCTION AND MINING MACHINERY INDUSTRY 12/12/14 36
  • 37. INDIAN EARTHMOVING & CONSTRUCTION EQUIPMENT INDUSTRY : CURRENT STATUS • Expanding at Compounded Annual Growth Rate(CAGR) of 40% in last three years. • Having Market of US$2.3 Billion • Organized sector accounts for 55% of the Earthmoving and Construction Equipment. • About 71% of this industry comprises of public limited companies and 29% lies in private limited. • Indian Operation can be used to fulfill the demand of South Asia and South East Asia. 12/12/14 37
  • 38. TECHNOLOGY STATUS IN INDIA • Construction Equipment , technology leaders are: Komatsu, Caterpillar, Hitachi, Volvo, JCB and many more. • Mining Equipment, technology leaders are: Atlas Copco, Liebhrr, Joy Mining Machinery, Hitachi • Construction Equipment Sector is in intermediate stage of development. • Advancement in technology have also increased the size of haul truck and rope shovel. 12/12/14 38
  • 39. GROWTH PROSPECT IN INDIA • New techniques and technology in various construction projects . • Key Infrastructure Projects are Road & Highways, Bridges & Urban Construction, Power Projects, Railways, Airport-Modernization, Real Estate development. 12/12/14 39
  • 40. TRENDS ARE DRIVING CONSTRUCTION EQUIPMENT EVOLUTION 1. Unprecedented Infrastructure – Estimates indicate planned investment of approximately US$ 1 trillion over next 8 years in infrastructure. 2. Continued Dominance of Price Focused and Value Focused Customers: 70% – 80% of customer in India are price and value focused. Dominance is likely to continue even up to 2020 3. Expanding Presence and Engagement of Global OEM’s in India: OEM’s are attracted by one of the world’s fastest growing construction equipment market. 4. Increasing export opportunities: Sourcing of components, aggregates and equipment is likely to accelerate due to increasing cost pressures in developed markets. 5. The off-shoring of engineering and design (E&D) services 12/12/14 40
  • 41. DOSSIER OF CONSTRUCTION AND MINING EQUIPMENTS and Equipment • Mining Machinery 1. Power Shovels 2. Cranes 1. Excavators 3. Concrete Mixers 2. Drills 4. Dredging Machinery 3. Feeder Breakers 5. Articulated Dump Trucks 4. Crushers 6. Asphalt Finishers 7. Backhoe Loaders 8. Crawler Dozers 9. Crawler Excavators 10. Wheel Excavators 11. Scrapers 12. Earth Moving Compactors 13. Skid Steer Loaders 12/12/14 41
  • 42. PRODUCTIVITY MACHINES (AVERAGE WORKING HRS/DAY 10-15 HOURS) Equipment Functions Average Economic Life Refinancing Cycle Backhoe Loader Earth cutting, Road, Earthmoving 10 years Max twice in life time Wheel Loader Loading 10 years Once in life cycle Excavators Earth cutting, removal 15-20 years Twice in life cycle Compactors (Soil and Asphalt) Soil and Asphalt compaction 15-20 years Twice in life cycle Skid Steer Loaders Multiple applications 10 years Once Dumpers Loading/unloading 10-12 years Two–Three times Tippers Loading/unloading 10-12years Two–Three times 12/12/14 42
  • 43. SUPPORT MACHINES / EQUIPMENTS (AVERAGE WORKING HRS/DAY 4 HOURS) Equipment Functions Average Economic Life Refinancing Cycle Graders / Dozers Grading of Earth Haul 10-20 years Twice in life cycle Cranes a) Mobile Hydraulic Crane (10T – 80T) Site Work, Heavy components lifting 30-35 years 4 times in a life cycle within refurbishment b) Crawler Crane (30 T – 80 T) – Mechanical & Hydraulic Site Work, Heavy Components lifting 30-35 years 4 times in a life cycle within refurbishment 12/12/14 43
  • 44. GENERAL TECHNICAL ANALYSIS WHILE VALUING A CE ASSET • While valuing an equipment the health of each components / sub-assembly / assembly needs to be checked in operational conditions. • Pre – requisite of valuation exercise includes: 1. Site Visit: It is mandatory that a site visit be made where the equipment is parked with chassis imprints on newspaper as documentary evidence in daytime 2. Photography: At least 3 to 4 photographs at various angles needs to be taken. Digitally encrypted photos with GPS date and time 3. Maintenance Log Book: Regular maintenance schedules, preventive maintenance chart, oil changes need to be noted down. Accidental history needs a noting down 12/12/14 44
  • 45. GENERAL TECHNICAL ANALYSIS WHILE VALUING A CE ASSET • After pre – requisite exercise we have to cover the technical aspect. It include following points to be considered: 1. Operator Cabin / Monitor, control lever 2. Engine / Auto-Electric System 3. Other aspects which we consider for machines is given in the slides further. 12/12/14 45
  • 46. COMMERCIAL DOCUMENTATION FOR VALUATION 1. Invoice 2. Engine Imprint 3. Road Tax Form 4. The title of equipment 5. A vahan status incase of a registered asset 6. Import documents - more relevant to cranes pavers - B/L, TR6 CHALLAN ,CE CERTIFICATE OF COUNTRY OF ORIGIN LOAD TEST CERTIFICATE IN CASE OF CRANES 12/12/14 46
  • 47. PITFALLS OF VALUATION OF CONSTRUCTION AND MINING MACHINERY The valuer should be careful and should not succumb under any pressure in valuation of the finance company. The point to be given importance at the time of valuation are: 1.Equipment non operative: An equipment for refinance should be and must be in operative condition. 2.Under maintenance or refurbishment: Asset need to valued twice. 3.Photography prohibition: In absence of the photography the valuers observation is final. AIRPORTS ,PORT RESTRICTED AREAS 4.ABL’s need the report yesterday: A hurried report gives huge chances of errors. 5.Technology obsolescence: Valuer should be well informed about the technology and the degradation of the value therein. 12/12/14 47
  • 48. KEY POINTS OF VALUATION OF CONSTRUCTION AND MINING MACHINERY • EVERY ASSET IS DIFERRENT APPROACH SHOULD BE DIFFERENT • APLICATION STUDY • USAGE PATTERN NO OF HOURS OF ACTUAL USAGE PER MANDAY • HISTORY OF O&M • BRAND VALUE • CURRENT MARKET VALUE • COST OF SPARE PARTS • REFURBISHMENT COST • DISTRESS SALE VALUE • AUCTION /NEGOTIATED SALE VALUE 12/12/14 48
  • 49. BACKHOE LOADER A backhoe, also called a rear actor or back actor, is a piece of excavating equipment or digger consisting of a digging bucket on the end of a two-part articulated arm. They are typically mounted on the back of a tractor or front loader. 12/12/14 49
  • 50. BACKHOE LOADERS APPLICATIONS AND ASSET HEALTH FOR VALUATION Applications Study •It is the most suitable machine for digging below the machine level, such as, trenches, footings, basements etc. •It can be efficiently used to dress or trim the surface avoiding the use of manual effort for dressing the excavated the surface. •Rentals FOR EARTH MOVING •Asset health •Brand name •Hours of work per day •O&M cost - 5 to 7 percent for JCB In the first year •Swing cylinder life most important •Engine condition blow by 12/12/14 50
  • 51. BACKHOE LOADER VALUATION CHECKLIST FOR VALUE AND OVER VALUE • Application usage – bucket life , cylinder life ,engine life - corosiove environment , abrasive application – sea shore , chemical fertilizer plant ,coke handling, rock quartzite application • Number of working hours per day - Rentals 15 18 HOURS • Brands - JCB, TELCON JD, CASE , ECEL, ACE TEREX • NEW TO USED RATIO SALES - 20 TO 1 • O&M COST YEAR ONE 5 TO 7 PERCENT OF THE EQUIPMENT COST YEAR THREE 12 TO 15 % OF EQUIPCOST • FUEL CONSUMPTION HISTORY - HP/13 • Normal depreciation 10 to 12 percent high usage 20 % per annum • Max refinance two turns / cycle • Value addition calculation - engine overhaul replacement , pumps cylinders • Localized market pull and support structure with non uniform value 12/12/14 51
  • 52. BACKHOE LOADER VALUATION CHECKLIST • VALUE VS OVER VALUE IN A BACKHOE LOADER- INSURANCE AND IDV TRAP • WDV ,SLM OR GRID A LAZY CREDIT MANAGERS TOOLS • WEIGHTAGE OF VINTAGE ,BRAND PULL & ASSET CONDITION • WEIGHTAGE BRAND PULL(INCLUDING AFTERMARKET SUPPORT ) 25% • ASSET CONDITION 45% • USAGE 10 % • APPLICATION 10% • LOCAL MARKET PULL 5% • OTHER FACTORS 5% • BUY BACK GURANTEE A DERISKER 12/12/14 52
  • 53. EXCAVATORS Excavators are heavy construction equipment consisting of a boom, stick, bucket and cab on a rotating platform (known as the "house"). The house sits atop an undercarriage with tracks or wheels. The classification is on tonnage >30 tonne class for mining application 12/12/14 53
  • 54. APPLICATIONS OF EXCAVATORS AND ASSET HEALTH FOR VALUATION • Excavators are used in many ways: – Digging of trenches, holes, foundations – Material handling – Brush cutting with hydraulic attachments – Forestry work – Demolition – General grading/landscaping – Heavy lift, e.g. lifting and placing of pipes – Mining, especially, but not only open-pit mining – River dredging – Driving piles, in conjunction with a pile driver Excavator Final Drive Line 12/12/14 54
  • 55. EXCAVATOR ASSET HEALTH FOR VALUATION 1. Excavator Boom and Stick Arm & Bucket Condition 2. Undercarriage Track pads 3. Turn Table OR SLEW RING 4. ENGINE health 12/12/14 55
  • 58. EXCAVATOR VALUATION CHECKLIST FOR VALUE AND OVER VALUE •Number of working hours per day - Rentals 15 18 HOURS Brands - JCB, TELCON JD, CASE , ECEL, ACE NEW TO USED RATIO SALES - 30 TO 1 O&M COST YEAR ONE 7 TO 10 PERCENT OF THE EQUIPMENT COST YEAR THREE 15 TO 21 % OF EQUIPCOST FUEL CONSUMPTION HISTORY - HP/13 Normal depreciation 10 to 12 percent high usage 22 % per annum Max refinance three turns / cycle Value addition calculation - engine overhaul replacement , pumps cylinders Localized market pull and support structure with uniform value 12/12/14 58
  • 59. VALUATION EXCAVATORS CHECKLIST FOR VALUE AND OVER VALUE • VALUE VS OVER VALUE IN A EXCAVATOR - INSURANCE AND IDV TRAP • WEIGHTAGE OF VINTAGE ,BRAND PULL & ASSET CONDITION • WEIGHTAGE BRAND PULL(INCLUDING AFTERMARKET SUPPORT ) 25% • ASSET CONDITION 35% • USAGE 10 % • APPLICATION 15% • LOCAL MARKET PULL 3% • OTHER FACTORS 5% • BUY BACK A DERISKER 12/12/14 59
  • 60. WE VALUE EVERYTHING UNDER THE SUN 10/14/2013 44 60
  • 61. • AICH APPRAISERSAUCTIONERS AND VALUERS We value every thing under the sun • Partnership firm Started in August 2009 •Valuation Services for Movable And Immovable Assets Construction and Mining ,Medical Equipments for asset based lenders banks and financial institutions •Consulting Partnership With American Appraisals Pvt. Ltd. •Over 6000 assets valued in three years with a value of around 3000crores INR •MEMBER COMPANY OF CII ,BNCCI AIMA &IGCC WE VALUE EVERYTHING UNDER THE SUN 10/14/2013 45 61
  • 62. AICH APPRAISERSAUCTIONERS AND VALUERS We value every thing under the sun •EMPANELMENTS WE VALUE EVERYTHING UNDER THE SUN 47 62
  • 63. AICH APPRAISERSAUCTIONERS AND VALUERS We value every thing under the sun EMPANELMENTS WE VALUE EVERYTHING UNDER THE SUN 10/14/2013 46 63
  • 64. •200% Year on year Growthboth bottomline and topline •Strong credit rating •Qualtrics Rated top 3 in India in Valuation Services •Finalist forAIMA -Dr J.S Juneja Award for Innovation and creativity for MSME enterprises for 2012 -2013 and ICICI - CNBC India Emerging India Awards 2013 LUE EVERYTHING UNDER THE SUN 10/14/2013 48 64 AICH APPRAISERSAUCTIONERS AND VALUERS
  • 65. WE VALUE EVERYTHING UNDER THE SUN 10/14/2013 49 65
  • 66. • KATAICH INFRACORE ENGINEERING PVT. LTD. •Started with Changling construction machinery distribution and Nawa crushers •Year on year growth 200% •Revenue of ½ million USD in 2011-2012 •Shantui heavy machinery dealership •Spare parts supplier company •Started as the flagship company and diversified WE VALUE EVERYTHING UNDER THE SUN 10/14/2013 50 66
  • 67. • AICH MINING RESOURCES PVT. LTD. Opencast & Underground Mining of ferrous & non ferrous metal & non metal mines concept to commisioning projects •Opencast & Underground Equipment Selection, installation •Concept to commissioning Technical Consulting & Mining Consulting •Coal Washers Consulting •CHF Concept to Concept to commissioning projects WE VALUE EVERYTHING UNDER THE SUN 10/14/2013 51 67
  • 68. • AICH MINING RESOURCES PVT. LTD. Opencast & Underground Mining of ferrous & non ferrous metal & non metal mines concept to commisioning projects •Opencast & Underground Equipment Selection, installation •Concept to commissioning Technical Consulting & Mining Consulting •Coal Washers Consulting •CHF Concept to Concept to commissioning projects WE VALUE EVERYTHING UNDER THE SUN 10/14/2013 52 68
  • 69. A BREIF PROFILE OF INDRANIL AICH F ABOUT INDRANIL AICH Chequered career of 18+ years in the industry out of which 14 years in multinationals of repute Worked in Titagarh Wagons Ltd GoIndustry - Dovebid (Formerly Henry Butcher) ,UT Limited (JV between Usha Group and Telehoist of U.K.) Ingersoll Rand India Ltd,TIL (Tractors India Limited) -Jayashree Textiles, Indian Rayon Group -Rishra. Award winning Production engineer with MBA from IIFT kolkata . Publications and teaching assignments in several institutions of repute . WE VALUE EVERYTHING UNDER THE SUN 10/14/2013 53 69
  • 70. A BRIEF ABOUT INDRANIL AICH PROFESSIONAL MEMBERSHIPS International Memberships Honorary Life member of Royal Institute of Chartered Surveyors (RICS), London. Life member American Society of Mechnical Engineers USA Life member of the Mining ,geological and metallurgical Society of India . Life Member of Operational Society of India, Quality Circle Forum of India, Systems Dynamics Society of India Life Member of Institution of Engineers (Membership No.M-132302-9) and Chartered Engineer from Institution of Engineers (AM 092132-5). Approved valuer (Registration No.18328) Category - Production & Industrial Engineering and Fellow and Life Member of Institution of Valuers. Member of Indian Council of Arbitration, New Delhi an organization of FICCI and Ministry of Commerce.Member of Practicing Valuers Association of India WE VALUE EVERYTHING UNDER THE SUN 10/14/2013 54 70
  • 71. A BRIEF ABOUT INDRANIL AICH A BRIEF ABOUT INDRANIL AICH INDUSTRY CHAMBER MEMBERSHIPS Member of Confederation of India Industry Eastern Region Member of MSME National council CII Member of West bengal state council Member of the economic affairs ,taxation and finance subcommittee Member of the Safety subcommittee Member of the MSME subcommittee WE VALUE EVERYTHING UNDER THE SUN 10/14/2013 55 71
  • 72. You can reach me @ • indranilaich@gmail.com • indranilaich@outlook.com • Mobile +919831088204/+919038088204 DREAM>BELIEVE>PURSUE Friday, December 12, 2014 72