Look at Swot

A

BRIEF REPORT

ON

ENGINEERING SECTOR IN INDIA

November 2013

1.1

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Page 2 of 11

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A brief report on Engineering Sector in India

Private & Confidential Page 3 of 11

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

Indian Engineering

Sector

Industrial Majors

(Refining Automotive

textile)

Power Utilities (Generation, transmission, & Distribution

Retail Consumer (Pumps & Motors)

Government (Public

Investment)



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 highvalue 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



Advantage in Engineering Sector

Growing demand

Capacity creation in sectors such asinfrastructure, power, mining, oil &gas, refinery, steel, automotives, andconsumer durables driving demand in theengineering sectorRising demand for electrical andconstruction equipment

Attractive opportunities

Nuclear capacity expansion to providesignificant business opportunities to theelectrical machinery industryRapid increase in infrastructure investmentand industrial production to fuel furthergrowth

Higher investments

Comparative advantage vis--vis peers interms of manufacturing costs, marketknowledge, technology and creativityHighly organized sector and dominated bylarge players employing over four millionskilled 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

Engineering Sector

2.3

Private & Co

Major m

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Page 6 of 11

merchandiseengineeringods, otherasteners.Then worth ofg for newerse in the USrose 2% inSeptember-

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3. MARKET PLAYERS Top players in the engineering sector are

Name of the company

Parent Company Output Product & Services

Plants

BHEL

Public sector enterprise. Indias 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.

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 54.63 percent in Siemens Ltd


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


Largest private sector enterprise in the business of electrical engineering

Facilities are located at Bhind, Mumbai, Nashik, Hosur, Goa



Larsen & Toubro Ltd (L&T)

Part of the L&T group, Indias largest engineering, and construction conglomerate.


Four segments namely Engineering and Construction (E&C), Cement, Electrical and electronics and Diversified business. It also has 19subsidiaries

Facilities are Coimbatore in Tamil Nadu, Kurnool, and District in Andhra Pradesh and Hassan in Karnataka.



4. SWOT ANALYSIS Engineering Sector SWOT Analysis

Strengths Opportunity

Engineering is the largest sector in India. .Demand driven industry .It is a vast sector that ranges from mini

projects to large collaborations Excellent advancement in technologies Availability of abundant human

resources Geographically situated at ideal locations

Growing channel of exports in the

neighboring countries. A huge potential for direct exports in

the neighboring countries Industries in India is being looked upon

as an outsourcing destination by global companies

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



5. GOVERNMENT POLICIES

5.1 Government Initiative

Governments 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 sectors 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 allowanceof 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 150.13 3,242.14Miscellaneous mechanical and engineering

114.73 2,483.98

Industrial machinery 122.95 2,519.45 Non-conventional energy 141.28 2,801.02Machine tools 31.65 655.68 Medical and surgical appliances 35.73 717.61Agricultural machinery 16.60 337.35Earth-moving machinery 8.64 190.05 Railway related components 17.93 366.29Industrial instruments 3.10 67.06Scientific instruments 5.42 102.78 Boilers and steam generating plants 3.06 62.00



6. FUTURE OUTLOOK

The engineering sector is expected to grow in the future and has a positive outlook owing to infrastructure development, favorable government policies, and newinvestments 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, Indias 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 2013-14. 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.

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