BRIEF REPORT ENGINEERING SECTOR IN INDIA. January 2015

Transcription

1 A BRIEF REPORT ON ENGINEERING SECTOR IN INDIA January 2015 For more information, contact:

2 1. OVERVIEW 1.1 Background Indian engineering industry has witnessed an unprecedented growth in the past few years as a result of increased investment in infrastructure development and industrial production. Today, India has a diversified industrial machinery/capital base competent of catering to complex requirements and demands for an entire range of industrial machinery. The engineering industry plays a significant role in the development of other industrial sectors in the economy. This sector is very closely linked with the manufacturing and infrastructure sectors of the economy. The quality and cost of engineering products depends on the quality of the parent machine tools and their automation levels. The development of machine tool industry is, therefore, of great importance for a competitive and selfreliant industrial structure. The Indian engineering sector is of strategic importance to the economy owing to its intense integration with other industry segments. Development in sectors such as infrastructure, power, mining, oil and gas, refinery, steel, automotives, and consumer durables are driving demand in the engineering sector. Major foreign players are also confident and have big expectations from the Indian engineering segment as it enjoys a comparative advantage in terms of manufacturing costs, market knowledge, technology and creativity. The total exports of Indian engineering sector stood at US$ 56.7 billion during Fiscal Year 2013 and are anticipated to grow to US$ 125 billion by Fiscal Year Exports from the engineering segment have registered a compound annual growth rate (CAGR) of 12.6% over the period Fiscal Year wherein transport equipment is the leading contributor to engineering exports. Engineering Heavy Engineering Light Engineering Heavy Electrical Heavy Engineering and Machine Tools Automotive Low Technology Products High Technology Products Private & Confidential Page 2 of 13

3 2. GROWTH OF INDIAN ENGINEERING SECTOR Growth in the domestic engineering industry has been fuelled by growth in key end-user industries and many new projects undertaken in various core industries such as railways, power, and infrastructure. Capacity creation in sectors such as infrastructure, oil and gas, power, mining, automobiles, auto components, steel, refinery, and consumer durables has driven growth in this sector. For example, the domestic sales of automobiles have grown at a CAGR of around 18% over the past four years thereby increasing the demand for engineering goods. Apart from demand from user industries, the availability of technical education infrastructure that provides an increased number of technically trained human resources each year has been another key factor aiding the engineering industry in India. Further, India is being preferred by global manufacturing companies as an outsourcing destination due to its lower labor cost and better designing capabilities. Growth sector is driven by key user industries Industrial Majors (Refining Automotive textile) Government (Public Investment) Indian Engineering Sector Power Utilities (Generation, transmission, & Distribution Retail Consumer (Pumps & Motors) Private & Confidential Page 3 of 13

4 2.1 Heavy Engineering The engineering industry in India manufactures a variety of products, with heavy engineering goods accounting for majority of the production. Most of the leading players in the heavy engineering goods segment manufacture high value heavy engineering goods using high end technology. The requirement of huge capital investments acts as an entry barrier. Consequently, the small and unorganized firms have small market presence. The unorganized sector specializes in manufacturing low-technology products while a few small scale units are involved only in assembly of imported components. This segment caters to the replacement market for few products such as low quality small bearings. 2.2 Light Engineering On the other hand, manufacturers of light engineering goods use medium to low-end technology. The entry barrier is low, owing to relatively lower requirement of capital and technology. This segment is characterized by dominance of small and unorganized players, which manufacture low value-added products. However, a few medium and large scale firms produce high value-added products. This segment is also characterized by small capacities and high level of competition. Classification of Heavy & Light engineering sub-segments Heavy engineering sector Light engineering sector Textile machinery Rolling bearing Cement machinery Medical and surgical instruments Sugar machinery Process control instruments Rubber machinery Industrial fasteners Material handling equipment Ferrous castings Oil field equipment Steel forgings Metallurgical Seamless steel pipes and tubes Mining machinery Electrical resistance welded (ERW) steel pipes and tubes Dairy machinery Submerged-arc welded (SAW) pipes Machine tool Bicycle Source: Ministry of Heavy Industries & Department of Industrial Policy & Promotion Private & Confidential Page 4 of 13

5 Advantage in Engineering Sector Growing demand Capacity creation in sectors such as infrastructure, power, mining, oil & gas, refinery, steel, automotives, and consumer durables driving demand in the engineering sector Rising demand for electrical and construction equipment Attractive opportunities Nuclear capacity expansion to provide significant business opportunities to the electrical machinery industry Rapid increase in infrastructure investment and industrial production to fuel further growth Engineering Sector Higher investments Comparative advantage vis-à-vis peers in terms of manufacturing costs, market knowledge, technology and creativity Highly organized sector and dominated by large players employing over four million skilled and semi-skilled labour Policy support De-licensed engineering sector; 100 per cent FDI permitted Cumulative FDI totaled USD 19.9 billion over April 2000-April 2013 due to policy support Private & Confidential Page 5 of 13

6 2.3 Major markets The engineering sector is one of the major contributors to the country's total merchandise shipments. The US and Europe together account for over 60% of India's total engineering exports. Engineering exports mainly include transport equipment, capital goods, other machinery/equipment and light engineering products like castings, forgings and fasteners. The Ministry of Commerce and Industries has set a target of shipping US$ 125 billion worth of engineering goods by the end of Indian engineering companies are scouting for newer markets (like Latin America, Africa etc.) for exports along with strengthening their base in the US and Europe. Engineering goods represent India's third-biggest export sector which rose 2% in August Engineering exports are projected to cumulatively expand by 22% in September-December 2013 to US$ 21.5 billion against US$ 17.1 billion last fiscal. Transport equipment is the leading contributor to engineering exports. The segment accounted for 32.5 per cent of the total engineering exports during FY13* (*Latest updated data). Export Segment (FY 13*) Transport equipment 9% 14.1% 32.5% Machinery and Instrument 17.7% Manufactures of metals 26.8% Primary and semi furnished iron and steel Others Private & Confidential Page 6 of 13

7 2.4 Growth opportunities in Engineering Sector Defence Budget for the defence sector is expected to grow 8 per cent until 2014; of this, 54 per cent would be earmarked for procuring manufactured items which is likely to translate into a market opportunity of USD91 billion over Government initiatives, such as allowing private sector participation, have been reinforced by opening up the sector to 26 per cent FDI, and its offset policy is expected to enhance private sector (including SME) participation Civil nuclear sector India s nuclear capacity is expected to be strengthened by 3.8 GW by 2012; an additional 12,000 MW has been planned under the 12th Five-Year Plan ( ) It represents a total business opportunity worth USD312 million for the manufacturing industry, which is likely to garner 61 per cent Auto components Global auto majors are rapidly ramping up the value of components they source from India, steered by the country s advanced engineering skills, established production lines, a thriving domestic automobile industry and competitive costs Industry sales are expected to increase to USD40 billion by 2016, with about USD20 billion generated from exports Power transmission and distribution (T&D) T&D expenditure is set to increase as a result of growth in power generation and privatisation of distribution By the end of 2012, the transmission network was expected to be about 60,000 circuit km, with a potential demand for 630,000 transformers Material handling equipment The material handling equipment sector is expected to gain from robust demand from steel, power, mineral and other infrastructure industries Market demand for material handling equipment is estimated at USD30 billion over Machine tools Demand for machine tools from the capital goods sector (especially automobile and textile industries) is projected to remain high Considering the industry's demand for higher productivity, superior precision and accuracy, as well as low-cost manufacturing solutions, computer numerically controlled (CNC) machine tools are set to be in greater demand Private & Confidential Page 7 of 13

8 2.5 Export Growth in Engineering Sector Engineering exports include transport equipment, capital goods, other machinery/equipment and light engineering products such as castings, forgings and fasteners. Private & Confidential Page 8 of 13

9 3. MARKET PLAYERS Top players in the engineering sector are Name of the company BHEL Parent Company Output Product & Services Public sector enterprise. India s largest engineering and manufacturing enterprise Revenues (FY 13) $9.3 billion Caters to power generation and transmission, transportation (especially railways),telecom, renewable energy & industry at large. Plants 14 manufacturing divisions, four power sector centers, over 100 project sites, eight service centers and 18 regional offices. ABB Ltd Private Company Revenues (FY 13) $1.4 billion Transformers, Switch Gears, Control Gears Facilities are located at Bangalore, Faridabad, Halol, Haridwar Siemens Ltd Flagship of the Siemens Group in India. Siemens AG, the parent company holds percent in Siemens Ltd Revenues (FY 13) $2.6 billion Power generation and Distribution equipment, industrial projects and equipment, transportation systems, communication and healthcare products Has plants at Aurangabad, Nashik, Goa, Thane and North 24 Parganas (West Bengal) Crompton Greaves Part of the Avantha Group Revenues (FY 13) $2.1 billion Largest private sector enterprise in the business of electrical engineering Facilities are located at Bhind, Mumbai, Nashik, Hosur, Goa Private & Confidential Page 9 of 13

10 Larsen & Toubro Ltd (L&T) Part of the L&T group, India s largest engineering, and construction conglomerate. Revenues (FY 13) $28.3 billion Four segments namely Engineering and Construction (E&C), Cement, Electrical and electronics and Diversified business. It also has 19 subsidiaries Facilities are Coimbatore in Tamil Nadu, Kurnool, and District in Andhra Pradesh and Hassan in Karnataka. Private & Confidential Page 10 of 13

11 4. SWOT ANALYSIS Engineering Sector SWOT Analysis Strengths Opportunity Engineering is the largest sector in India. Growing channel of exports in the Demand driven industry neighboring countries. It is a vast sector that ranges from mini A huge potential for direct exports in projects to large collaborations the neighboring countries Excellent advancement in technologies Industries in India is being looked upon Availability of abundant human as an outsourcing destination by global resources companies Geographically situated at ideal locations The future for engineering sector is very promising. Power projects, other infrastructure development activities, industrial growth, and favorable policy regulations will drive growth in industries. Weakness Threat Large product development cycle Unprofessional working style Inadequate level of training of employees Lack of professionalism at top management Unorganized vendor base Exposure to global markets Fluctuating raw material prices Recession leading to delays/cancellations of projects Private & Confidential Page 11 of 13

12 5. GOVERNMENT POLICIES 5.1 Government Initiative Government s focus on infrastructure development is expected to keep demand for the engineering sector high. Continued growth of manufacturing sector and favorable regulatory policies would further propel the sector s growth. Engineering Services Outsourcing (ESO) services from India has the potential to exceed US $40bn by 2020, and with the right support from Government and other stakeholders, can impact the engineering sector as a whole. The Government has been instrumental in the growth of the Engineering sector: Tariff protection on capital goods has been withdrawn. This has reduced custom duties on a range of engineering equipments. Initiatives like Power for all by 2012, capacity addition plans in the 12th Five Year Plan and infrastructure projects such as Golden Quadrilateral and the North-South and East-West corridors have fuelled growth in the sector. Government has granted significant number of SEZs for the engineering sector across the country. 5.2 FDI Policy The initiatives of the government towards FDI have also served as a catalyst to further raise the demand for engineering goods and machinery. FDI inflows: Apr 2000-Aug 2013 Engineering industry attracts around 35% of the total FDI through an automatic route, Removal of tariff protection on capital goods, de-licensing of heavy electrical industry and allowance of 100% FDI, infrastructure development and reduction of custom duties on various equipments are some of the initiatives by the government, which have positively impacted the engineering sector. Particulars Rs billion US$ million Electrical equipment , Miscellaneous mechanical and , engineering Industrial machinery , Non-conventional energy , Machine tools Medical and surgical appliances Agricultural machinery Earth-moving machinery Railway related components Industrial instruments Scientific instruments Boilers and steam generating plants Source: Department of Industrial Policy & Promotion Private & Confidential Page 12 of 13

13 6. FUTURE OUTLOOK The engineering sector is expected to grow in the future and has a positive outlook owing to infrastructure development, favourable government policies, and new investments in power projects, metals, oil & gas, and petrochemicals industries. Further industrial and manufacturing growth will boost growth in the engineering sector. As the export market offers more opportunities to explore, India s contribution in global engineering exports is expected to increase. Emerging trends like outsourcing of engineering services provide opportunities for growth. Engineering and design services such as new product designing, product improvement, maintenance and designing manufacturing systems are getting increasingly outsourced to Asian countries like India. It is estimated that by 2020 India can be a US$ 40 billion market for engineering outsourcing services. In addition, Department of Commerce has set a target of US$ 125 billion for engineering exports in Thereafter, for the remaining three years of the 12th Five Year Plan, based on a CAGR of 20% for the major sectors of engineering exports except Industrial Machinery, Electrical Machinery, and Shipbuilding, the overall export target for engineering exports at the end of the 12th Five Year Plan has been set at US$ 222 bn. Thus, there are many opportunities for the Indian engineering sector Private & Confidential Page 13 of 13