Economy: Lifting Sentiments
The leading makers of elevators and escalators in India are pumping in money to expand their manufacturing capabilities indicating a big spurt in future demand
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How will the Real Estate (Regulation and Development) Act, 2016 (RERA) impact the residential and commercial projects? This question is best answered by the massive capacity expansion initiatives currently underway by most leading elevators and escalators manufacturers in the country. India, of course, is the second largest market for elevators and escalators after China.
So be it KONE, Schindler, Johnson, OTIS or Mitsubishi elevators, these organised players that account for a lion’s share in the Rs 10,000-crore elevators and escalators market in India, are all pumping in an estimated Rs 700-800 crore to expand their respective manufacturing capabilities.
KONE India has just commissioned the construction of its second manufacturing plant at Oragadam, Chennai spread over 18 acres. It will be operational in early 2019. “We will be able to manufacture 200-250 elevators a day in this facility,” says Amit Gossain, Managing Director, KONE India, the Indian-arm of Finland-based international elevator engineering and service company and the current market leader with a little over 20 per cent market share.
Another Chennai-based homegrown elevators and escalators manufacturer Johnson Lifts, the second largest player after KONE India, also recently announced a heavy duty escalator manufacturing facility at Oragadam, Chennai with a reported initial investment of Rs 100 crore. The company already has two manufacturing facilities in Nagpur and Chennai.
Schindler India, the Indian arm of the Swiss major, is investing Rs 170 crore to expand its manufacturing facilities by setting up India’s first escalator manufacturing line near Chakan, Pune. India’s oldest lift maker OTIS recently expanded its manufacturing line in Bengaluru with a reported investment of around Rs 100 crore. More investments are in the pipeline. This means, the glut in the residential, and to some extent, the commercial real estate market will go away soon.
But why this sudden spurt in capacity expansion? We decided to travel to Chennai to ask Gossain of KONE India. “Recent notifications of RERA by various states is a big positive for the sector in the long run. Not only will Acts such as RERA bring in more accountability in the sector for all stakeholders but also lift the end-user sentiment, which is key to demand revival. Post RERA, there will be a faster turnaround of projects as timely delivery of residential and commercial projects is mandatory under RERA norms. All these factors will lead to a big spurt in demand for elevators and escalators,” he says. Additionally, the growth in metro projects coupled with the railway station redevelopment and modernisation programmes is also fueling the demand for elevators and escalators.
Currently, around 340 million or one-third of the Indian population lives in cities. By 2030, the number will be more than double with India having 68 cities with a population of over 1 million, says a recent McKinsey report. This is another factor why multinational elevator firms are expanding their capacities. Of course, the neighbourhood markets of Sri Lanka, Bangladesh, Nepal, etc., are also catered to by India.
The Market Scenario
The Indian elevators market is estimated at 50,000-55,000 units annually and an installed base of quarter of a million. It is valued at around Rs 10,000 crore. KONE India, Johnsons Lifts and Schindler India together have a combined marketshare of close to 60 per cent, with a third with KONE India. In 2015-16, the top five players generated around Rs 6,000 crore in revenues and a combined net profit of Rs 550 crore as per their respective filings with the Registrar of Companies. By 2020-21, the Indian market is expected to grow 35-40 per cent crossing 70,000 elevators per annum mark. But the growing market is also throwing up new challenges such as emphasis on energy-efficient products and gearless elevators. “Our KONE I MonoSpace, a machine room less, gearless solution, and KONE I MiniSpace, a machine room, gearless solution were launched in October 2015. These two products largely cater to the modern residential buildings that are low and mid-rise. With tall buildings being the current trend, providing faster elevators is essential,” says Gossain. The need for innovative and eco-efficient products is also increasing with the ‘Green Building’ concept gaining significant ground in our country, he adds. Agrees Sebi Joseph, President, OTIS India. OTIS, he says, is amongt the top five respectable players in the market. “Not too long ago, we expanded our facility in Bengaluru. We will also now be starting an escalator line within the facility. We are building high-speed elevators in Bengaluru and (working on) other localisation programmes keeping in mind the demand,” says Joseph. According to industry estimates, the spilt between residential and commercial market for elevators is around 70-80 per cent versus 20-30 per cent.
With GST and RERA rolled out, not only will there be greater demand for elevators but there will be transparency and value for quality services says Gossain. “The maintenance services, an essential component for elevator makers, is now 18 per cent. We are already getting calls from builders and resident welfare associations who wish to renew or engage with quality brands like us,” he says.
The Need For Regulations
With fast pace demand, comes the need for regulations. However, almost two-thirds of the country is still not covered with any legislation governing the installation and maintenance of lifts. The industry players say a uniform Lift Act could not only help in improving product safety by using new technologies but also support in optimising development, manufacturing and installation costs. “Even after seven decades, only about 11 states in this country have understood the importance (of regulation in the sector)and enacted legislations covering the installation and maintenance (of lifts) within their respective jurisdiction. These different acts are administered by different authorities — in some states, by lift inspectorates, and in some others, through the electrical chief engineers. Thus, the need of the hour is a suitable legislation in all the states so there is an effective mechanism to control the installation of this safety critical equipment,” says Gossain.
As per available information, only the states of Tamil Nadu, Kerala, Maharashtra, Gujarat, Haryana, Delhi, West Bengal and Assam have state specific Acts or rules. “Though there are Lift Acts in different states, being a state subject, there is no uniformity in the legislation across states, resulting in difficulty in compliance even for the organised lift manufacturers. Hence, we make a fervent appeal for a Model Lift Act at the central level like many other social security legislations,” says Gossain.
According to Joseph, lack of skilled manpower and differing applicability of safety codes across India are two biggest challenges currently faced by the industry. “While there are standards issued by the Bureau of India Standards, these serve as guidelines and are only mandatory if enacted by the state legislation. “Industry bodies such as the Bureau of Indian Standards are trying to change this by driving mandatory safety standards for the elevator and escalator industry and seeking co-operation from the states. At OTIS, safety is fundamental to everything we do and we are supportive of the industry efforts to raise awareness on the importance of adopting such standards,” says Joseph.
Another issue plaguing the elevators market in the country is the transparency in reporting sales figures. “We are trying to form a SIAM (Society of Indian Automobile Manufactures) like body, so accurate reporting can happen. But there are a number of reasons why even established players do not wish to report their figures. But we are trying,” says Gossain of KONE India.
Central government’s push to affordable housing coupled with time-bound delivery of residential and commercial projects, especially across realty hotspots such as Mumbai, Pune, Hyderabad, Bengaluru, Chennai, Kolkata and Ahmedabad will push the demand for elevators, say experts. Plus, the ongoing metro projects across Delhi, Nagpur, Chennai, Bengaluru, Lucknow, Hyderabad and few more cities will also drive the demand for escalators and elevators as both are part of the modern day metro station infrastructure. “The demand for high-speed elevators is increasing. Innovations in look and feel are also big differentiators. And then, the servicing and maintenance is a crucial factor for customers. Together, we are gearing up to cater to a big surge in the demand for elevators and escalators,” says Gossain. One thing is for certain, the turnaround of real estate sector is just around the corner. In order to meet the future capacity challenges, the stakeholders need to sit across the table and push the central government for a uniform model regulation that can help in bringing in standardisation, economies of scale and robust safety measures.
“Transparency in what we do”
Your view of India amidst recent policy and regulatory changes.
Demonetisation in November 2016 followed by GST and RERA, which are fundamentally all good things, but they seem to be causing some short-term uncertainty. I don’t think fundamentally, our view on India has changed. We still see India as a market with the highest potential.
Your 5-year vision for India business amidst competition.
It is usually a good thing to have tough competitors because that’s how you also develop your business more actively and make sure you run it a bit faster than the competitor. I feel good about our growth and development in India. We have a very strong team here. Our business is a very local business. We also know that we have good solutions for our customers. When you have good leadership and strong capability coupled with good solutions and services for customers, it’s a win-win situation.
Your views on pricing in the Indian market.
Of course, that is a very important feature, and yes, Indians are good at negotiating. We believe when we differentiate and show our customers that we are there to help them improve their business, then we actually benefit. That’s a true win-win for the customer and us. There is transparency in what we do and I believe we are competitive too.
Importance of residential and commercial projects for KONE India.
Residential segment is the biggest chunk of the business here in India. If you look at it, residential business contribute 60 to 65 per cent or even more to our India business. In this regard the creation of Smart Cities or new residential and commercial infrastructure hub will always be of interest to us. We are very large players, so we can do both.
Your view on India looking from Finland.
That’s a good question. Naturally, looking from outside, it is the size and the potential of this market that catches your eye. India is the second largest market for elevators and escalators in the world. We are seeing more customers getting positively sophisticated and demanding. They want good solutions. What I also like about India is the large talent pool that we have been able to find here. The challenge of running a business continues to be movement of logistics, road connectivity, and finding time-efficient transportation solutions in the country. I think, GST will help in ease of doing business, but for now these are perhaps the challenges where India will need to improve itself in the coming time.