Equipment rentals hit construction industry

Equipment rentals hit construction industry

Mumbai: The boom in the construction industry is proving to be a double-edged sword for companies in the sector. High demand for construction equipment—coupled with a worldwide shortage—has led to a sharp rise in hiring charges for such equipment.

“Different equipment have different trends. On an average, the cost of hiring has gone up by approximately 30–40% over the last two years. It has a definite impact on the business not only from the cost point of view, but also from timely availability of resource as well," S.J. Punnose, general manager (plant and machinery) for Larsen & Toubro Ltd (L&T), said in an emailed response.

L&T, India’s largest publicly traded engineering and construction company, hires about 20% of its entire equipment requirement.

What is worrying construction firms is that this shortage has come at a time when the country is witnessing one of its biggest booms in the industry. “That (the shortage of equipment) is the fundamental issue for the infrastructure companies. Their order book is 3-10 times their size of revenue and they have two-three years’ time to execute. Clearly, it is beyond the capacity of the companies to handle such order books. So, there is a shortage and pricing pressure on the equipment. This trend will continue for the next 18 months," said Gopal Sarma, managing director of the infrastructure advisory division of New Delhi-based Feedback Ventures Pvt. Ltd.

While the cost of hiring has gone up across the board, the sharpest rise has been in cranes. “The cost of hiring for specific construction equipment such as cranes has gone up to 35% of total hiring costs," said J.K. Valecha, managing director of Valecha Engineering Ltd.

L&T, which spent Rs25 crore in hiring equipment for construction, feels that it may well end up spending Rs60 crore in just hiring costs by the end of this year.

“Rentals (for cranes) are going up because requirement of cranes in the country has gone up dramatically and there is a shortage of cranes all over the world," said Chandrakant P. Sanghvi, chairman and managing director of Sanghvi Movers Ltd.

Sanghvi owns telescopic, crawler and truck lattice cranes ranging in capacity from 25 tonnes to 800 tonnes.

Some see a solution in owning as much of the equipment needed as possible.

For instance, Valecha Engineering owns most of the equipment it uses, having invested close to Rs100 crore to build up an equipment bank. “The company took a conscious decision to invest in purchasing the machinery as this ensures that they are available as per the requirement of the company and the projects are set to roll at the earliest," said Valecha.

But even Valecha Engineering has to rent equipment some time, and runs into the same problems as others. “Indian hiring market is not well organized; most companies work in a particular region," said Punnose of L&T.