Summer Internship Project Jayesh Halgekar FLAME School of Business Identifying and analyzing the market potential of forgings in the Non- Automotive sectors Summer Internship Project Jayesh Halgekar FLAME School of Business 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 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 Large Medium Small 9 – 11 units 100 – 120 units 230 – 250 units Source: Association of Indian Forging Industries (AIFI)

Indian Forging Industry In ‘000 MT CUF: 65% CUF: 59% CUF: 70% CUF: 57% CUF: 30% Year *CUF: Capacity Utilization Factor Source: Association of Indian Forging Industries (AIFI)

Non Automotive sectors identified as potential market for forged products Railways Off – road equipment Oil & Gas refineries Diesel Engines/ Generators Aviation Space Exploration Equipment Defense Equipment Agricultural equipment Valves Shipping/ Ship Building Power Generation Industrial/ Heavy Engineering

Open – die/ Hammer Forging/ Ring Rolling 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 tips Valve bodies and components Engine components Chassis components Axle components Flanges (Weld neck/ Girth) Rings Gears Nozzles Tube Sheets Blanks Blinds Wheel sets for locomotives Bearing races Shafts Fly 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 Loaders Excavators Loaders Bulldozers Skid-Steer Loaders Wheeled Loading Shovels Wheel Loaders Motor Graders Motor Scrappers Dump Trucks Wheel Dozers Draglines Concrete Breaker Paver Finisher Concrete Batching Plants Concrete Pumps Concrete Mixers Hot mix plants Telescopic Handlers Crawler Cranes Mobile Cranes Truck Cranes Forklifts Pick & Carry Cranes Slew Cranes Tower Cranes Conveyors Crushing Plants Jaw Crushers Compaction Equipment Vibratory Rollers Pavers Dumpers Articulated Haulers Rotary/ DTH Drilling Hammer Track Drill Boring Equipment Demolition Equipment

Product – wise contribution in the industry Contribution in the industry which is estimated to be Rs. 14500 Crores as in 2008 Excavator industry is thus valued at Rs. 5800 Crores as in 2008 Source: KPMG Analysis, CII – KPMG Report on Indian Infrastructure

Excavator Manufacturing companies in India include Other potential entrants in the sector include: 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. Source: Primary survey and published news articles

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

Components in an excavator which are generally forged Sprockets Spindles Rollers Track links Idlers Guide base Wheel hubs Counter pins Yokes Levers Axle beams Gears Shafts Teeth

Average no. of components per machine Number of individual forged components in an excavator Forged Component Average no. of components per machine Track links/ shoes 90 - 100 Rollers 12 - 20 Idlers 2 Teeth 5 - 10 Sprocket wheel Shafts 15 – 30 Counter Pin 4 Forged 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

Estimated annual demand (in numbers) 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 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 Company Upper rollers Bottom Rollers Idlers Bucket Teeth Track shoes Sprocket wheel Ring gear TATA Hitachi 22000 80667 11000 27042 523600 5500 JCB India 7000 24500 3500 11083 145833 1750 BEML 1167 3833 500 1375 23917 250 L&T Komatsu 10800 43200 5400 13500 253800 2700 Others 9000 40500 4500 11250 220500 2250

Projected growth for the excavator manufacturing industry in India Projected production 42% 40% 36% 30% 30% 24% 30% 23% 10% 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

List of excavator manufacturing facilities across the globe 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