Cummins India Ltd.
Cummins India Ltd is a subsidiary of Cummins Inc, USA, which is the global Power leader in Diesel & alternative fueled electric generators. Cummins entered India, in the early 1960’s with Joint Venture with Kirloskar Oil Engines Ltd. Today, the co. is the sole subsidiary of Cummins Inc, USA. Cummins is the market leader in India and enjoys roughly 39% of the market share alone. The business of Cummins is primarily derived from 3 activities, and these are:
- Engine Business: Cummins manufactures from engines from 60 HP for low, medium & heavy duty on-highway commercial vehicles, off-highway commercial equipment industry.
- Power System Business: They design & manufactures High Horse power Engines from 700 HP to 4500 HP for Marine, Railways, Defense & Mining Applications.
- Distribution Business: This segment is specifically for providing products, packages, services & solutions for the up time of Cummins equipment.
The company is present largely in the middle, Heavy duty and High voltage segments. It is trying to penetrate in the Lower segment as well. It supplies its engines to its OEM’s who further assemble that into generators. These OEM’s are:
- Sudhir Power Ltd: Sudhir has been the OEM of Cummins for the past 3 decades. Sudhir is a leading supplier/ dealer of diesel generator of Cummins in the regions of Delhi NCR, Punjab, Himachal Pradesh, Gujarat, Madhya Pradesh & Jammu Kashmir.
- Powerica Ltd: Powerica has been working as an OEM partner of Cummins since, 1984. It supplies the Cummins generator in the South & Western India.
- Jakson Ltd: Jakson Power manufactures & sales Cummins powered diesel generators in the North & North Eastern regions.
⇒The company’s plant in SEZ has entered 6th year, whereby its tax liability has increased from 22% to 27%, the companies tax shall increase further after 3 years.
⇒The company has leadership position in the industry & also, benefits immensely from the technological support provided by its parent co.
⇒The company has strong exports, which are nearly 31% of its revenue.
⇒The Higher segment products of Cummins India are priced a bit higher as compared to its peers. The company earns better margins, due to its strong sourcing & premium pricing of its products.
Caterpillar has been active in India since 1930s. They brand their products as “CAT”. ‘Perkins’ is a subsidiary of Caterpillar company. Caterpillar caters to the requirement of different industry, with its products & service for Mining & Quarries, Power Generation, Construction, Road works, Rail & Petroleum industry. It largely operates in India through its 2 dealers, i.e. TIPL (Tractors India P Ltd), GMMCO, who further handle 8 dealers.
- Tractors India P Ltd (TIPL): TIPL operates as the authorized CAT dealer in North and East India and Bhutan. TIPL sells and services an extensive range of Cat equipment for construction, mining and several infrastructure applications. The enduring partnership of over 72 years with Caterpillar provides TIPL with the desired competitive edge and that too entirely customer centric.
- GMMCO: GMMCO, a CK Birla group company, is the no. 1 dealer of Caterpillar products in India. It provides Diesel Gensets rating from 200 kVA to 7150 kVA and Gas Gensets rating from 77.5 kVA to 5000 kVA. Apart from Gensets, GMMCO provides with the engines for powering various on highway & off highway automotives.
Kirloskar Oil Engines Ltd.
Incorporated in the year 1946, Kirloskar Oil Engines is the flagship company of the Kirloskar group. Kirloskar Oil Engines’ specializes in the manufacture of both air-cooled and liquid-cooled diesel engines and generating sets across a wide range of power output from 2kVA to 1010kVA.
⇒Also, they offer engines that can run on alternative fuels such as Bio-diesel, Natural Gas, Bio gas & Straight Vegetable Oil (SVO).
⇒Apart from Gensets, the company produces Engines for Agriculture, Industrial & Other heavy industries.
⇒The company derives nearly 35% of its revenues from the sale of Gensets.
⇒The company is chaired by Mr. Atul Kirloskar and is managed by Mr. Nihal G. Kulkarni.
⇒The company took over La Gajjar Machineries (LGM), last year. LGM produces electric pumps for Domestic & Export markets. Its popular brands are ‘Varuna’ & ‘Raindrop’.
Mahindra & Mahindra
Mahindra & Mahindra Ltd ventured into Power Generation in 2001-02. The company brands its product as ‘Mahendra Powerol’. The company manufactures Diesel generators in the range of 5 kVA to 625 kVA, has huge presence in the Telecom sectors, it enjoys ~60% share in the Telecom sector and is clearly, an industry leader in this particular segment.
Greaves Cotton Ltd.
Greaves Cotton is chaired by Mr.Karan Thapar (of Thapar Group), the company is primarily engaged in the manufacturing of Auto Engines, but it also has diversified its product offerings and provides Gensets in the range of 2.5 kVA to 500 kVA. The company assembles the Power Generators for the use by various industries.
⇒The company is the market leader in the Diesel Engines for commercial vehicles.
⇒The company supplies Engines for Commercial Vehicles like 3 wheelers to Piaggio, Atul Autos.
⇒It has nearly 75% market share in the 3 wheeler engine segment. Apart from 3 wheeler engines, it supplies engines to Tata Motors for its commercial vehicles.
⇒The company has recently formed a Technological Alliance with Pinnacle Engines of US & Altigreen Propulsion Labs of Bangalore, to manufacture engines compliant with BSVI norms. The co. announced wider product portfolio, in order to de-risk its dependency on single cylinder engines. In its attempt, it will beef up its capabilities in areas of Generators, Energy & after- market products by entering into B2C segment.
Honda Siel Power Products Ltd.
The company is a subsidiary of Honda Motor Co. Japan, and was incorporated in 1985. The company is engaged in the production of Portable genset, Water Pumps, Tillers and General Purpose Engine. It has its manufacturing facility in Greater Noida.
⇒The company is quite export oriented with its products being exported to America, Middle East, Africa & other countries.
⇒The company produces genertors that run on petrol, rising prices of petrol can be a concern for the consumers.
⇒The demand for Portable Gensets is on a downward trend. The company is low on debt, cash positive and has a good dividend payout record.
⇒The company makes payments ~7-8% of its revenues to its parent company. These payments are in the form of Royalty, Model fees, Technical Information, etc.
Market Share of Top Players
The raw material account for the main item that costs an Engine. Nearly 70% of the cost is of Raw Material & the rest is of the Technology that is used in the manufacturing of the engine. The basic materials that are used to manufacture engine blocks are:
- Grey Cast Iron Alloys
- Aluminium Alloys
- Compacted Graphite Cast Iron
The manufacturing of Diesel Generators & Engines is done by qualified engineers and their trained staff, who are experts in their field. Employee cost is around 10-15% of the total cost.
The maintenance of the plant, machinery, tools & equipment’s is the other segment, that costs the company.
The general trend in the industry is that the Foreign companies are free from debt & hence their Interest obligations are quite limited & only is for the working capital loans.
1. On the basis of Fuel used:
A. Diesel Generators: These generators use diesel as a fuel. Diesel gensets are more fuel efficient than petrol engines and require less maintenance. Moreover, Diesel as a fuel is cheaper than Petrol.
B. Gas Generators: Gas Generators use propane or liquefied petroleum gas. Natural gas offers the advantage of easy storage in below or above ground tanks. Their operating costs are lower in comparison with Diesel generators, are clean burning fuel and have lower level of emissions. Generators that run on natural gas are durable but they can be more expensive in initial purchase.
C. Hybrid: Hybrid diesel generators combine the reliability of diesel generators and cost efficiencies of solar power to provide industrial users the best of both energy sources. The working principle of a hybrid diesel generator is simple. Solar energy produced by the modules during sunlight hours reduces the load on diesel gensets, saving fuel and thereby reducing operating costs. Power from the diesel engine provides the requisite frequency and voltage to firm up the DC current produced by the solar panels and stabilize the load. The hybrid diesel generator can be a combination of multiple energy sources like solar, wind, biomass, tidal etc.
2. On the basis of Voltage Rating:
A. 5kVA-75kVA: These are the Low Voltage gensets, and are usually used by Telecom, Commercial complexes, Educational institutes, Hospitality industry and small restaurants. The low segment of genset has highest number of suppliers of the gensets. This segment has more of the unorganized players competing with the organised players, thus, leading to larger volumes and choices for the customer, resulting in lower profitability for the sellers/manufacturers.
B. 75kVA-350kVA: Medium Voltage gensets are in the range of 75kVA to 350kVA, are put to use by Large industries whose power requirement is more. Other than large industries it is used by Real Estate, in Healthcare, Hospitality and in Infrastructure building.
C. 375kVA-750kVA: These are heavy duty gensets, and are typical for IT/ITES, for large Real Estate projects, Road construction & Metros or Railways.
D. Above 750kVA: Very High Voltage gensets are used in Data Centers, Metros, Railways & Malls. This segment comprises of few organized players, who are capable of bringing the technology from some foreign country. In this segment, while the competition is less, the margins are whooping owing to no pricing pressure.
Gensets Industry User Market Segmentation
375-750 kVA Gensets
750-2000 kVA Gensets
Attributes of Gensets Industry
The Organized sector is the major portion that manufactures & supplies the gensets and is nearly 71% of the total industry, while, the rest is the Unorganized segment.
⇒The Genset industry specifically in the Diesel segment is starting to mature. This is because of the fact that India is going to become Power Surplus by the year 2019. This would mean that less amount of Gensets shall be required for the Primary electrification purposes. In the years to come, it is projected that the industry shall comprise of a few players, who will hold on their share of market hard.
⇒The Genset industry witnessed a fall in demand during the period 2016-17, this was largely because of the Telecom sector had declined their demand for LHP (Low Horse Power) gensets. Earlier there were few companies who had their particular niche and cater to that, but now new players are adding with also players from abroad entering the Indian economy.
Emergence of Data Centers: A data center (or datacenter) is a facility composed of networked computers and storage that businesses or other organizations use to organize, process, store and disseminate large amounts of data. A large datacenter uses as much electricity as a small town. Every datacenter includes backup power supplies in the form of HHP DG sets.
⇒Data Centers are an upcoming sectors, that require multiple gensets to support the availability of data across the Servers. Key sectors looking at putting up
datacenters are BFSI, Social Media, Entertainment, Ecommerce and Telecom.
⇒During the year, there were some data centre trends which came up with a forseeble future which include Edge Data Centre (IT architecture in which client data is processed at the outskirts of a network enabling faster processing), Software Defined Networking (allows businesses to more easily mordenize IT infrastructure) and Data Centre Infrastructure Management Software (more efficiency and transparency & instant information on assets).
⇒The size of the digital populations in India presents a huge potential demand for data center infrastructure. Digital data in India was around 40,000 petabytes in 2010 and this number is projected to shoot up to 2.3 million petabytes by 2020, twice as fast as the worldwide rate. It is predicted that India would move to be the second-largest market for datacenters in the Asia Pacific by 2020, with investments reaching USD 7b or ~4.5% of the global investments.
Demand from Telecoms: The demand for gensets for the telecom tower is going to increase in the future. This is because of the need to prepare the infrastructure for 5G, Artificial Intelligence & Internet of Things (IOT). The Indian Government is planning to develop 100 smart city projects, where IoT would play a vital role in development of those cities. The National Digital Communications Policy 2018 has envisaged attracting investments worth US$ 100 billion in the telecommunications sector by 2022.
- Reducing Power Deficits: With the increasing investments in the Power infrastructure, India is projected to become power surplus by the year 2019. This will mean that lower need for it to have power generation capacities. But being power surplus does not necessarily mean ‘No Power Cuts’, the use of gensets shall shift from being used for Primary power generation purposes to Backup Power services.
- Cost of Power Generation: As per industry estimates, it costs nearly, Rs. 2.45/- unit to generate power from Solar panel, Rs 3-4/- unit by Coal & Hydro both, the wind power costs nearly Rs. 3.33/-unit, while it costs Rs 15-17/- unit for generating electricity through Diesel Gensets.
- Government Regulations: There are various government regulations that are made in order to align country’s emission levels with the global emission levels. These relate to the effluent emissions, Sound levels, pollution level that the gensets need to comply with. For example, the CPCB II norms that bring significant reduction in both Nitrogen Oxide & Particulate Matters, which requires a new generation engine & after treatment devices.
- Rising Input cost: The raw material, i.e. Steel & Iron prices are in an upward trend, thus, leading to pressure on the margins of the companies.
On the basis of Combustion:
- External Combustion: It is an engine in which combustion of fuel take place outside of the engine. In this type of engine, Heat is generated by burning of fuel, which is use to convert the water or other low boiling temperature fluid into steam. This high pressure steam is further used to rotate turbines. These engines are generally used in driving locomotive, ships, generation of electric power etc.
- Internal Combustion Engine: It is an engine in which combustion of fuel take place inside the engine. When the fuel burns inside the engine cylinder, it generates a high temperature and pressure. This high pressure force is exerted on the piston (A device which free to moves inside the cylinder and transmit the pressure force to crank by use of connecting rod), which used to rotate the wheels of vehicle. In these engines we can use only gases and high volatile fuel like petrol, diesel. These engines are generally used in automobile industries, generation of electric power etc.
On the basis of Number of Strokes:
- Two Stroke Engine: A two-stroke(or two-cycle) engine is a type of internal combustion engine which completes a power cycle with two strokes (up and down movements) of the piston during only one crankshaft revolution.
- Four Stroke Engine: It is an internal combustion (IC) engine in which the piston completes four separate strokes while turning the crankshaft. A stroke refers to the full travel of the piston along the cylinder, in either direction.
On the basis of Cylinder:
- Single Cylinder: A single-cylinder engine is a basic piston engine configuration of an internal combustion engine. It is often seen on motorcycles, auto rickshaws, motor scooters, mopeds, dirt bikes, go-karts, radio-controlled models, and has many uses in portable tools and garden machinery.
- Multi Cylinder: It is a reciprocating internal combustion engine with multiple cylinders. Multi cylinders range from 2 cylinders to 3,4,5,6,8,10,12 cylinders and can be of even larger configurations.
On the basis of Ignition:
- Spark Ignition (SI): The Spark Ignition (SI) Engine, as its name indicates uses spark to ignite the fuel. These engines use petrol or gas as fuel, because of their high self-ignition temperature. The spark plug uses voltage from the battery to generate spark in the engine.
- Compression Ignition: Unlike the Spark engines, these engines use diesel as a fuel. The self -ignition temperature of Diesel is comparatively lower, when diesel fuel is compressed to high pressures, its temperature also increases beyond the self-ignition temperature of the fuel. Hence in the case of CI engines, the ignition of fuel occurs due to compression of the air-fuel mixture and there is no need for spark plugs.
Applications of Diesel Engines
Automotive: Diesel engines are invariably used in the Automotive segment. These can be classified as On- Highway & Off- Highway Automotive.
a. On Highway Automotive: Engines are required in automobiles ranging from Passenger Vehicles, Commercial Vehicles, Trucks, Buses, SUVs etc.
b. Off Highway Automotive: Engines are also used in vehicles that are not for travelling (general use) or using on Public streets or highways. These are special vehicles to be put to use for special areas. For example, Tractors, Forklifts, Cranes, Bulldozers, JCBs etc.
Agriculture: Agricultural activities nowadays are becoming highly mechanized. Engines/ Motors can be classified as those used for Crop Irrigation and Farm Mechanization. Crop Irrigation equipments are Water Pumps & motors, while the Farm Mechanization equipment includes Power Tiller, Thresher, Brush Cutters etc.
Railways: Railways in India, are the major users of Diesel Engine. In India, about 52.2% of the engines run on Diesel, while, 47.8% run on Electricity. Each Diesel Powered train uses 2 sets of Diesel Engines.
Mining: Diesel Engines are of immense in the mining operations. Diesel Engines are used in drilling rigs, underground mining machines, excavators & wheel loaders, haul trucks etc. In mining activity, high powered diesel engines are used that are commensurate to perform heavy activities.
Defence: Further, engines are used in the Defence vehicles like Jeeps, Tanks etc thus, powering them to traverse difficult terrains. They also used in operations of fighting with natural calamities, by enhancing the ability to perform rapid road clearing, logistics handling or airfield rebuilding exert an important influence on the speed and success of the overall operation. Peacekeeping operations now place higher than ever demands on equipment and are fully dependent on the ability of the engine to operate at peak performance for long periods.
Marine: Diesel Engines have wide applications & are used in marine vehicles, like Boats, Ships, Sub marines etc. They are used in fishing vessels to pull the fishes out etc.
Increasing expenditure on Infrastructure: Government’s increasing expenditure on Infrastructural development shall boost the requirements of Engine for various purposes. The year 2018 has been a good one for infrastructure and capital goods companies, with 30 per cent growth in new order inflows. Nearly all the growth was fuelled by government and public sector orders, while private sector orders were conspicuously missing.
⇒India has a requirement of investment worth Rs 50 trillion (US$ 777.73 billion) in infrastructure by 2022 to have sustainable development in the country. Sectors like power transmission, roads & highways and renewable energy will drive the investments in the coming years.
⇒Only 24 per cent of the National Highway network in India is four-lane, therefore there is immense scope for improvement.
⇒With initiatives like ‘Housing for All’ and ‘Smart Cities Mission’ the Government of India is working on reducing bottlenecks and impeding growth in the infrastructure sector. Rs 2.05 lac crore (US$ 31.81 billion) will be invested in the smart cities mission. All 100 cities have been selected as of June 2018.
Subsidy on Farm Mechanization Equipment’s: Shortage of farm labour, rising wage costs and the need to enhance farm productivity are among the main reasons for increasing farm mechanization in India.
⇒Farm Mechanization products shall be specifically useful for small land holdings, wherein it is difficult to use Tractors, etc. by improving the yield per hectare.
⇒State Governments usually give subsidy to the farmers to buy farm equipment’s, such as Power Tillers, Power drawn Implements, Power Threshers etc. These subsidies provides boost in the sales of the products of the companies.
Farm Mechanization Progress in India
The Indian farm mechanization market, which was valued at Rs. 320 billion in 2015-16, is expected to grow at a CAGR of 5.74% to reach Rs. 400 billion by 2019-20.
Farm mechanization is a great opportunity for the engines industry.
Rising demand for automotive: Domestic automobile production increased at 7.08 % CAGR between FY 13-18 with 29.07 million vehicles manufactured in the country in F.Y.18. Indian automotive industry (including component manufacturing) is expected to reach Rs. 16-18 Trillion (US$ 251.4-282.8 billion) by 2026. Two-wheelers are expected to grow 9% in 2018. These figures represent a good scope for Engines in the coming years.
Major concerns for the Engines Segment
- Rising Oil Prices: The prices of Oil, both Diesel & Petrol are rising. These rising prices shall increase the operating expenses for the users of the engines.
- Upcoming BSVI norms: As per the orders of the Supreme Court, BS VI norms shall be applicable on Automotives from the year 2020 onwards. The strict orders from Supreme court mean that no company shall be allowed to use or sell BSIV engines. The upcoming of BSVI norms mean that the companies shall have to invest in new technologies, change or streamline their production facilities according to such norms.
- Rising input cost: The companies have been in huge pressure because of the rising prices of raw material. It has become difficult for them to mantain margins. Their key raw material like steel, iron have been at all time high values.
- Import: The cheap imports from China especially of Farm Equipment have caused distress for the domestic industries. Although, Indian Government has implemented import duty equivalent to 23.5%, yet, the imports continue to take place.
- Inefficiency in Subsidy payment: The payment of subsidy is highly inefficient and ineffective. Without the subsidy, it will become difficult for the companies to sell their farm equipment.
- Electrification of Railways: While railways absorb huge amount of Diesel Engines, but the recent announcement relating to the electrification of the Broad gauge railways by 2021-22, is surely going to deter the sales of the diesel engines. Also, the metros run on electricity, there is no scope for them to use diesel engines.
Overall Capital Goods Industry
⇒The turnover of capital goods industry in India is estimated at US$ 70 billion in 2017 and is expected to grow to US$ 115.17 billion by 2025.
⇒The scale for each segment of capital goods industry is going to get much broader backed by infusion of Government’s progressive policies; In the Union Budget 2018-19, the government allocated US$ 92.22 billion for the infrastructure sector. Allocation to the defence sector was raised to US$ 45.57 billion under Union Budget 2018-19. In addition, Make in India policy is being carefully pursued to achieve greater self-sufficiency in the area of defence equipment including air-craft.
⇒Though the opportunities are vast for scaling up but aspects of the capital goods industry can face permanent change rather than simply be affected by cascading market fluctuations. The introduction of a new type of product or device could mean expansion for companies in the capital goods sector. The development of alternative energy concepts often calls for new infrastructure to be built.
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