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Growth is the new mantra for Indian Engineering Industry
By Dr. Uday Lal Pai
Exclusively for InvestorIdeas.com
posted December 19, 2006
The single largest segment of Indian industry, the engineering sector, is on growth path fuelled by expenditure in core sectors such as power, railways, infrastructure development and private sector investments
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In India, the industry is divided into electrical, non-electrical machinery and static equipment manufacturer. A company from this sector can be a power equipment manufacturer (like transformers and boilers), execution specialist or a niche player (like providing environment friendly solutions). The engineering sector employs over 4 million skilled and semi-skilled workers (direct and indirect).
Though this sector is relatively less fragmented at the top, it is highly fragmented at the lower end (like unbranded transformers for the retail segment) and is dominated by smaller players. The user industries are mostly power utilities (generation, transmission and distribution), industrial majors (refining, automotive and textiles), government (public investment) and retail consumers (pumps and motors).
The engineering industry derives its demand from capacity creations in core sectors viz., power, infrastructure, mining, oil and other several other sectors including general manufacturing sector, consumer goods industry, automotive and process industries.
2006 was a good year for the Indian engineering industry. Strong growth in industrial and manufacturing industries reflected in the picking up of investment activities in areas like power, infrastructure and processes. The industry index reported a growth of 15.7% YoY according to various available data.
Heavy Engineering Industry is one of the largest segments of Industrial production. It occupies a whole range of industries such as Heavy Electricity Machinery. Turbines, Generators, Transformers, Switchgears, Textile Machinery etc. The Index of Industrial Production figures of 8 of the 16 major industry groups show substantial growth with the rates ranging from 6% to 28%.
Heavy engineering companies' aggregate sales increased 13% while sales of light engineering companies increased 25%. Among the developing countries, India is a major exporter of heavy and light engineering goods, producing a wide range of items.
People call manufacturing and engineering sectors as 'old economy'. Years of effort and struggle have separated the men from the boys and a reasonably healthy corporate picture is emerging from the mess that existed some years ago. Two crucial enablers have been a more liberal exit policy -with or without government policy support - as unions have been co-operating, realizing the gravity of the situation. From a policy perspective there has been a growing consensus that a private-public partnership is required to remove difficulties concerning the development of infrastructure in the country. The realization finally seems to be setting in. This makes the future of the Indian engineering sector extremely bright.
Growth in the overall engineering industry, especially in certain sectors like Auto Ancillaries, Gearbox manufacturers, pump and valve manufacturers will help the stock market to sustain the uptrend. Opening up of markets have given immense opportunities to the business leaders in India to capture the opportunities over the globe. The time gap in the period of 2001-06 is considered as the best time for India's business leaders. The fast rising economic performance of Indian Economy has created an environment of optimism on the part of the investors to invest more.
Modernization of Railway Workshops and Defense undertakings, Increased trend in outsourcing both by Indian as well as Global companies, Economy buoyancy and availability of finance, Demand for Light Commercial Vehicle Sector is growing fast all pointers to the future of the industry. Apart from highway development and construction and modernization of airports, the potential for the sector lies in the oil and gas space, where high global demand has led to increased action in exploration and production activities. Considering these factors, analysts expect the sector to grow strongly into the future. However, scale and execution capabilities will be the key mantras for success for the engineering companies.
Industrial growth and capital investment levels have improved and this will drive the growth in the coming years. Importance given for growth of infrastructure and core industry in the last two budgets of the Indian government is expected to increase capacity utilization of producers of coal, cement, iron ore and likely to increase demand for construction and mining equipments. The engineering sector has emerged as a preferred investment avenue for a large number of mutual funds too.
Major Players
ABB
BHEL
L&T
SIEMENS
Ashok Leyland
TATA
SUZLON ENERGY
Engineers India
THERMAX LTD.
TRF
VOLTAS
Kilburn Engineering
Disclaimer
Dr. Uday Lal Pai is an independent columnist for this web site.
Dr. Uday Lal Pai may hold long or short positions in any of the stocks mentioned in this article and those positions can change at any moment. InvestorIdeas.com Disclaimer:
www.InvestorIdeas.com/About/Disclaimer.asp, InvestorIdeas is not affiliated or compensated by the companies mentioned in this article.
Dr. Uday Lal Pai is a freelance writer. Nothing in the articles should be construed as an offer or solicitation or recommendation to buy or sell any specific products or securities. Past performance does not guarantee future results.
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