Summer Internship Project

Jayesh Halgekar

FLAME School of Business

Identifying and analyzing the market potential of forgings in the Non- Automotive sectors

11th May 2009 – 11th July 2009

Scope of the Study

The study aims at analyzing the potential on the Non – automotive markets for forged products

The sectors considered for the study include

Off- road equipment manufacturing

Diesel Genset Manufacturing

Valve Manufacturing

Indian Forging Industry

Large

Medium

Small 230 – 250 units

100 – 120 units

9 – 11 units

Total installed forging capacity in India as of FY 2009: 1.4 – 1.5 million MT

Total estimated forging production in India as of FY 2008: 1.1 – 1.2 million MT

16%61%

23%

Open Die Forging Closed Die Forging Others

Source: Association of Indian Forging Industries (AIFI)

Indian Forging Industry

2004 - 2005 2005 - 2006 2006 - 2007 2007 - 2008 2008 - 2009

0

200

400

600

800

1000

1200

1400

1600Actual Production Installed Capacity

In ‘000 MT

Year

CUF: 70%

CUF: 30%

CUF: 65%

CUF: 59%CUF:

57%

*CUF: Capacity Utilization Factor

Source: Association of Indian Forging Industries (AIFI)

Non Automotive sectors identified as potential market for forged products

Railways

Oil & Gas refineries Diesel Engines/ Generators

Defense Equipment

Industrial/ Heavy Engineering

Space Exploration Equipment

Off – road equipment

Power Generation

Aviation

Agricultural equipment

Shipping/ Ship BuildingValves

Forged products demanded by the Non Automotive industry commonly include following products

Closed – die Forgings Open – die/ Hammer Forging/ Ring Rolling

Under-carriage components for excavators Ground engaging tipsValve bodies and componentsEngine componentsChassis componentsAxle components

Flanges (Weld neck/ Girth)RingsGearsNozzlesTube SheetsBlanksBlindsWheel sets for locomotivesBearing racesShaftsFly wheels

Off – Road Equipment Manufacturing Sector

Product range observed in the Off- road Equipment Industry

Earth Moving Equipment

Concrete Equipment

Material Handling

Material Preparation

Road Construction Equipment

Construction Vehicles

Tunnelling & Drilling

Backhoe LoadersExcavatorsLoadersBulldozersSkid-Steer LoadersWheeled LoadingShovelsWheel LoadersMotor GradersMotor ScrappersDump TrucksWheel DozersDraglines

Concrete BreakerPaver FinisherConcrete Batching PlantsConcrete PumpsConcrete MixersHot mix plants

TelescopicHandlersCrawler CranesMobile CranesTruck CranesForkliftsPick & CarryCranesSlew CranesTower CranesConveyors

Crushing PlantsJaw Crushers

CompactionEquipmentVibratoryRollersPavers

DumpersArticulatedHaulers

Rotary/ DTH DrillingHammer Track DrillBoring EquipmentDemolition Equipment

Product – wise contribution in the industry

57%

5%

12%

7%

6%

13%Earth Moving Equipment

Material Preperation

Tunneling & Drilling

Road Construction Equipment

Concrete Equipment

Material Handling

70%

6%

15%

9%

Earthmoving equipment segment

ExcavatorsBackhoesLoadersOthers

Excavator industry is thus valued at Rs. 5800 Crores as in 2008

Source: KPMG Analysis, CII – KPMG Report on Indian Infrastructure

Contribution in the industry which is estimated to be Rs. 14500 Crores as in 2008

Excavator Manufacturing companies in India include

Source: Primary survey and published news articles

Liugong India Private Limited

Guangxi Liugong Machinery Company Ltd. (China), In association with Salgaocar Engineers Pvt. Ltd

XCMG Machinery India Pvt. Ltd.

Terex Vectra

Kobelco Construction Equipment Pvt. Ltd.

Other potential entrants in the sector include:

Share of individual companies in total excavator production in India for FY 2007 - 2008

Off-road equipment manufacturers Estimated annual production of excavators

JCB 1700 - 1800

Telcon Hitachi (Dharwad) 3500 - 3800

Telcon Hitachi (Jamshedpur) 1750 - 1950

L&T Komatsu 2600 - 2800

BEML 200 - 300

Others 2000 - 2500

Total 11750 - 13150

Source: Primary survey and published news articles

JCB15%

Telcon Hitachi (Dharwad)

32%

Telcon Hitachi (Jamshedpur)

16%

L&T Komatsu24%

BEML2%

Others11%

Components in an excavator which are generally forged

Sprockets

Rollers

Idlers

Wheel hubs

Yokes

Axle beams

Spindles

Track links

Guide base

Counter pins

Levers

Gears

Shafts Teeth

Number of individual forged components in an excavator

Forged Component Average no. of components per machine

Track links/ shoes 90 - 100Rollers 12 - 20

Idlers 2

Teeth 5 - 10Sprocket wheel 2 Shafts 15 – 30Counter Pin 4Forged ring gear 1

Forged components contribute to not more than 5% of the total components in an excavator of which 90% is contributed by undercarriage components

Components in an excavator which are generally forged

Slewing bearing

Total estimated demand for forged products in the excavator manufacturing industry in India for the FY- 2007 - 2008

Forged component Estimated annual demand (in numbers)

Links 1167000 - 1168000

Rollers 242000 - 243000

Sprockets 24500 - 25000

Teeth 64000 - 64500

Idlers 24500 - 25000

Ring gear 12400 - 12500

Excel spreadsheet analysis

Company-wise estimated demand for forged products in the excavator manufacturing industry in India for the FY- 2007 - 2008

CompanyUpper rollers

Bottom Rollers

IdlersBucket Teeth

Track shoes

Sprocket wheel

Ring gear

TATA Hitachi 22000 80667 11000 27042 523600 11000 5500

JCB India 7000 24500 3500 11083 145833 3500 1750

BEML 1167 3833 500 1375 23917 500 250

L&T Komatsu 10800 43200 5400 13500 253800 5400 2700

Others 9000 40500 4500 11250 220500 4500 2250

Projected growth for the excavator manufacturing industry in India

2007 2008 2009 2010 2011 20120

5000

10000

15000

20000

25000

30000

35000

40000

45000

Realistic Assertive

30%

24%30%

40%

42%

10%23%

30%

36%

Projected production

Year

Greenfield projects in the sector

BEML Ltd. has plans to set up a new manufacturing unit for defense products and parts for the Railways at the Kinfra Integrated Industrial Park. The company intends to invest Rs 260 crore in this venture. The first phase of the factory will come up on 400 acre at Sathyanathapalam in Kanjikode, Palakkad, provided on a long-term lease by Kinfra.

Heavy equipment like bulldozers and earthmovers as well as heavy vehicles meant for defense use will be manufactured at the plant

Greenfield projects in the sector

Caterpillar India Ltd and the Tamil Nadu government have signed a Memorandum of Understanding (MoU) for a heavy engineering equipment manufacturing plant near Chennai with a capital investment of Rs 800 crore.

The plant will manufacture equipment used in the construction and mining industry. Caterpillar India Ltd., will also be expanding its manufacturing capacity at its plants in Thiruvallur and Hosur in Chennai.

Greenfield projects in the sector

Terex Pegson & Powerscreen are opening a manufacturing plant in Hosur, India.

The Indian plant is expected to start assembly operations in mid-2009 with additional manufacturing processes to be added over the long-term.

Greenfield projects in the sector

Escorts Construction Equipment will invest Rs 60 crore to set up plants in Vallabhgad in Haryana and Rudrapur in Uttaranchal.

Another Rs 130 crore is likely to be invested in five years. The company, which exports some 100 units a year now, plans to increase exports to 500 units within a year.

Greenfield projects in the sector

JCB Chairman Sir Anthony Bamford officially opened the company’s newly extended $ 60 million backhoe loader factory in India, the largest plant of its kind anywhere in the world.

The factory in Ballabgarh, Faridabad, has undergone huge expansion, doubled its capacity and enables JCB to produce 100 backhoes a day.

The existing backhoe plant area was 24,000m2 but now totals 33,574m2 including assembly line, paint shop, fabrication, transmission, logistics, utility, pre-delivery inspection and hot test area.

Greenfield projects in the sector

Ashok Leyland Ltd has entered into a JV with John Deere, for manufacturing and marketing of construction equipment.

Greenfield projects in the sector

Telco Construction Equipment Company Ltd is setting up earth moving equipment factory in Kharagpur spread over 250 acre.

Greenfield projects in the sector

Liu Gong Group is planning to open a manufacturing facility at Indore in India, at an investment of Rs 150 crore which will be operational by May 2009.

They plan to start with wheel loaders and hydraulic excavators, and increase their product profile later.

The facility at Indore will have the capacity to produce 500 units of machines per annum, and will be increased as per the demand.

The Liu Gong wheel loader was named China's top brand and sold about 32,000 such loaders in 2007 - ‘08 globally to emerge as the second largest loader manufacturer in the world after Caterpillar

Prominent multinational companies in excavator manufacturing

List of excavator manufacturing facilities across the globe

Prominent undercarriage component suppliers in the world

Berco SpA

ITR America

Yantai Huhui Machinery Co. Ltd., China

Parco Track Company, South Korea

ITM Italy

Daechang Forging Co. Ltd., South Korea

IVA Johann GmbH, Baumaschinentechnik, Germany

Taiheiyo Seiki KK., Tokyo Japan

Prominent undercarriage component suppliers in India

Ramkrishna Forgings

India Forgings

Vishnu Forgings

Local (unorganized) forging companies in Kolhapur and Faridabad

Marketing recommendations for MFL

Forged components being priced higher than substitutive castings for similar application, Indian manufacturing facilities prioritize cost reduction over material physical properties thus giving a preference for usage of cast and fabricated components in excavators

A similar scenario is not observed in manufacturing facilities in other parts of the globe where only forged components are used. This gives MFL a reason to focus on overseas excavator manufacturing facilities as potential markets

However, for an impressive and successful marketing plan for overseas excavator manufacturing facilities, MFL should be able to boast of serving the Indian operation divisions of MNCs like JCB, Hyundai, Komatsu, etc.

If MFL foresees a potential in the industry sector, they may consider entertaining small quantity orders from PSUs like BEML and Ordnance factories who integrate undercarriage systems in their products

Marketing recommendations for MFL

Forged products demanded by the earthmoving equipment industry do not require high finishing, accurate machining or close tolerance considering their application. This enables the unorganized sector in the forging industry to easily cater to the demand thus making the competition severe in terms of price

Efforts for developing customer relationships moving from supplier to development partner and full service provider (design to development) of finished products would prove fruitful especially for overseas markets

Companies like Caterpillar India Ltd. and BEML have in-house engine manufacturing facilities which can be targeted by MFL for supplying engine components if has not done so already. As a registered supplier to the engine division MFL may seize opportunities to market their capability for under carriage components to the excavator manufacturing facility under the same business house

With an increase in rental services for earth-moving equipment, spares market too is on the rise. MFL may consider the opportunity of supplying to dealers and trading companies for excavator spares

Allied recommendations for MFL

Employing a dedicated marketing team for the non-auto sector which would not be independent of Mahindra Systech may be considered by MFL

The projected rates of growth for the sectors considered in the study provides a promising demand for forged products in the future

With automation on the forefront at MFL, they should also consider branding themselves with Clean Development Mechanism (CDM) to provide an impressive carbon footprint on their portfolio

Energy conservation and efficiency mechanics can be considered for implementation for the high power consuming hydraulic presses

Investment in renewable sources of energy like wind and solar power may be considered which would also provide tax benefits and portray MFL as an organization with green initiatives. CNG buses for employee transport too could be promoted. The green identity may prove to be a novel idea while marketing the MFL profile to global OEMs

Thank You