Mayank Bansal, A.T. Kearney

16th December, 2014

Overview Session: Enabling Infrastructure Development through Construction Equipment

bC India 2014

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India’s infrastructure challenges (opportunities) are well known

India

0.6%

Mexico

12.9%

China

3.5%

US

8.2%

Access to improved water – piped on premises (% of total population)

Area irrigated by canals (as a % of total arable land)

Presence of Multilane Roads (km of multilane roads as % of overall road length)

India

12%

Pakistan

20%

Indonesia

34%

India

204

US

55

Brazil

23

Mexico

19

Airport congestion (000’s of passengers per airport)

India

23%

Brazil

92%

China

68%

US

88%

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Stable new government at the center has rekindled the hope for revival of infrastructure sector

New government is expected to raise the bar on speed, scale and quality of infrastructure projects

Major announcements by the new government in the last 6 months

“Make in India” “Bullet train” “Smart cities”

Manufacturing capability

Improved transportation

Better urban infrastructure

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Construction equipment adoption and usage can be a key enabler to realize infrastructure growth

The benefits provided by ECE will be especially relevant as the scale of infrastructure projects increases

Sample Elements Covered

Key benefits

• Efficiency / Productivity improvement

• Lower ‘time to completion’

• Lower risk of accidents

• Reduced costs of compensation / stoppages

• Higher specifications, lower tolerances

• Consistency in quality

• Address local labor shortages

• Enables better project planning

Key benefits of increased construction equipment usage

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Currently, India lags benchmarks in adoption of Earthmoving & Construction Equipment (ECE)

Source: A.T. Kearney analysis, BMI (Business Monitor International) Report 2014, World Bank Data 2013

36

3028

2% 6%

4% 5%

India

155

Brazil

688 601

108

USA China

Construction Industry Size (in USD Bn.)

Construction Equipment Industry Value (in USD Bn.) Key highlights

• India has the smallest CE industry size

• India has the lowest adoption rate of CE in construction industry compared to other large countries

~17 ~9 ~2 ~2 GDP (in

USD Tn.)

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“The discipline of getting

things done”

Multiple challenges need to be addressed to improve adoption of construction equipment (1/5)

Imperatives - Government

• Institute stringent norms on quality and timelines

• Better ‘process control’ related to execution through regular monitoring

• Better planning to address deviations

• Provide safe ‘working environment’ at sites

• Incentivize to adhere to quality and timelines

Project requirement & discipline

• No stringent quality and timeliness norms in India

• Lack of execution discipline

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“It’s not all about cost”

Multiple challenges need to be addressed to improve adoption of construction equipment (2/5)

Imperatives - Government

• Move beyond just L1 bidding criteria – include factors like ‘quality’, ‘safety’, ‘time to completion’ and most importantly ‘past track record’

• Introduce transparency in selection process

• Weed out ‘outliers’

Bidding process

• Limited focus on quality, time and safety assurance in bidding criteria

Change picture

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“What’s in it for us?”

Imperatives - Industry

• Customer education programs to communicate benefits of ECE usage

• Trainings on the ‘right’ way of operating the equipment

• Focus on after sales support to ensure high uptime

Work together with customers

• Customer education on benefits that ECE offers is lacking

• Significance of using the equipment the right way is also a gray area

Multiple challenges need to be addressed to improve adoption of construction equipment (3/5)

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“Making ECE more

affordable”

Imperatives - Government

• Easing the norms:

– Remove contractual obligation to own equipment

– Avoid dual taxation by recognizing leasing as either a ‘good’ or a ‘service’

– National registration of ECE

Rental and leasing market

• ECE rental market is highly fragmented & underdeveloped

• High propensity among contractors to own the equipment

• Leasing subject to dual taxation

Multiple challenges need to be addressed to improve adoption of construction equipment (4/5)

Imperatives - Industry

• Competitive rental and leasing options

• OEM support in ‘after-sales’

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“Being fully-equipped”

Imperatives - Government

• Institute uniform guideline on safety & quality requirements for equipment operators

• Set-up centralized skill certification & inspection body for ECE industry

Skilled manpower

• Lack of specialized skill development programs & training

• Propensity to employ less qualified workers due to lack of uniform safety & quality guideline

Imperatives - Industry

• Tie-up with select Industrial training institutes to offer skill development opportunities

• Make training more affordable

Multiple challenges need to be addressed to improve adoption of construction equipment (5/5)

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Increased adoption of ECE will lead to better infrastructure and higher industry growth

Better developed infrastructure to live in

Drive the growth of the ECE industry

BETTER DEVELOPMENT, HIGHER GROWTH