Machine Tools
The machine tool industry has a growth opportunity with GDP and market expansion. Indian Machine Tool Manufacturers’ Association (IMTMA) data reveals that India’s GDP will reach $7 trillion by 2030. The manufacturing ratio to GDP, currently at 18%, is expected to reach 25% by 2030, and the ambition is to get 30% by 2035. The manufacturing share is expected to be 25% of 7 trillion, or $1.7 trillion, vs. $500 B in 2022 and is expected to reach 3X in the next 5-7 years.
India’s Machine tool market is currently at $1.4 billion and is expected to double to $2.7 billion in the next five years. The global Machine tool market was $120 billion in 2023 and is expected to reach $125 billion in the next five years.
The machine tool industry is a fundamental pillar of Indian engineering’s industrial sector. Businesses widely utilize machine tools in various applications, including die molding, component production, aircraft, shipbuilding, electrical and electronics, healthcare, and consumer durables.
According to Gardner’s World Machine Tools Output Survey, the Indian machine tool industry ranks 9th in output and 7th in consumption. Also, it is a component of the capital goods industry, which accounts for 12% of the manufacturing sector, and it represents a substantial multidisciplinary field with multiple end-use application sectors.
In 2022, Indian Machine Tool consumption recorded US$2.78 billion, up 30% from US$2.14 billion in 2021. India is classified as a Low Producer but a high consumer. 2022 Indian Machine Tool imports recorded US$1.6 billion, up 71% from US$0.93 billion in 2021. In 2022, Indian Machine Tool Exports recorded US$0.182 billion, up 78% from US$0.102 billion in 2021.
India’s global rank has reached 9th in production and 7th in consumption. Consumption has remained at a similar level over the last five years. The good news is that production ranks improved from 11th to 9th in the competitive market, reflected in increasing export figures.
- The rise in demand from significant user sectors, such as Auto & Auto Components, General Engineering, Consumer durables, etc., increased domestic production market share to 44% in FY23.
- The rising demand in emerging sectors, such as mobile manufacturing and specified electronic components, medical devices, drones, etc., also led to a substantial domestic market for large-sized machine tools in FY23.
- In FY23, the Metal Cutting Machine Tool Industry consumed Rs. 19,232 Crores, and production was Rs.10,195 Crores.
- Consumption for Lathes is the highest at Rs 4,723 Cr and forms 25% of the total metal cutting machine tool consumption in India during FY23
- In FY23, the Metal Forming machine tool Industry consumed Rs. 5,304 Cr, and production was Rs. 2,133 Cr.
- Consumption for Presses is the highest at Rs 2,494 Cr, forming 47% of India’s total metal-forming machine tool consumption during FY23.
However, the competitiveness challenges due to
- Industry 4.0
- High-end CNC machine demand
- Shift from ICE to EV, which requires high-end machines
- Eco-system development for a one-stop solution for factory floor
These trends are expected to affect the traditional/conventional machine tools, in which India is a strong player.
Weak link in the Indian machine tools industry
- Market Structure is fragmented; Scaling is too tough
- Speed of Innovation and technical know-how are slower than required.
- The financial strength of Indian companies is comparatively weaker than that of the global competitors.
Our Services Applied to the Machine Tool Sector
The diversity of Machine Tools Manufacturers and IMTMA in size, scale, and ambition makes developing a unique proposal challenging. Each company needs to consider its strategy based on its strengths. It additionally depends on the business model, as some companies may focus on exports while others are domestic. There are also niche players, offerings, and products or solutions!
Execution is a critical aspect in the industrial manufacturing sector that cannot be done effectively until planning and competence building are in place. Critical success factors are crucial to achieving growth and sustainability. This requires consistent efforts and a medium—to longer-term focus.
We have developed a solid portfolio focusing on specific requirements in the machine tools sectors—that too, mainly smaller and medium companies. Indian companies have established a position in operational excellence. However, it lacks commercial and financial excellence. Commercial and financial excellence are the key factors strengthening the competitive advantage, in addition to R&D and operations.
Fintelligence Consultants offer the services to address these problems.
Strategic Planning, Positioning, and Growth Strategy Options
Formal Growth Strategy and Market Expansion
- Market Penetration and Market Development
- Enhancing revenue from existing customers through analytics (Share of Wallet)
- Maximizing Customer Lifetime Value (CLV)
- Customer Retention and Churn Analysis
- Market Development through Market Entry Feasibility Study
Financial Planning and Analysis
- Robust Forecasting. Commercial Excellence portfolio is a crucial prerequisite for robust forecasting.
- Medium-term through Business Plan
- Short Term through Rolling and Annul Forecasting
- Profit Maximization. Pricing strategy and service portfolio enhances the profit maximization opportunities.
Commercial Excellence
- Customer Strategy
- Sales Strategy and Sales Force Effectiveness
- Pricing Strategy
- Service Portfolio
Analytics
- Sales and Customer Analytics
- Product and Customer Profitability Analysis The analysis is divided into granular levels to understand the issues and synthesize the opportunities.
Fundraising Advisory
- New Avenues for Financing
- Growth Equity (Private Equity)
- Bond and Credit Rating
- Equipment Finance
Compelling proposition to Business Owners of Machine Tools Manufacturers and IMTMA
The Indian economy is showing promise, giving hope for significant business advancement. The economic growth cycle has established long-term business growth.
Fintelligence Consultants firmly believe that an organization’s success is not a matter of luck but the result of a systematic approach to development. According to a McKinsey study, companies implementing sustainable growth strategies are ten times more likely to succeed.
Fintelligence Consultants can help you tap into your business potential and make your company successful. We provide expert services to address unique business issues and ensure timely solutions.
- IMTMA publishes excellent reports that can be analyzed at a granular level and used in creating growth strategy options and planning. These reports can also be used as a Performance Management tool instead of a one-off annual exercise.
- The COVID-19 pandemic has highlighted risks and constraints in the supply chain. We now need to prioritize continuity, sustainability, and availability. Investors may need to consider more significant investments and vertical integration to improve supply chain efficiency.
- Sales and customer analytics contribute to Commercial Excellence, which maximizes profitable revenue through Revenue Growth, Customer Retention, Pricing Management, Service business, and Data-driven decision-making, including Predictive Analysis. Many Indian companies achieve Operational Excellence but struggle with commercial excellence.
- IOT Analytics applications improve product quality and customer service. Better customer insights lead to proactive customer service and increased customer engagement, which helps build better products and services.
- Finally, Financial Analysis and Management promise Dynamic Budgeting and Robust Forecasting, Working Capital Management, and Profitability improvement, mainly through Customer and Product profitability. By implementing a business intelligence dashboard, companies can achieve their financial goals.
- We have expertise in Growth Strategy, Business Analytics, and Financial Analysis and Management. We are willing to work with Machine Tools Manufacturers and IMTMA to build these capabilities.
What Opportunities are Available for India?
Significant Drivers of the Machine Tools Industry
- India is the fastest-growing major economy in the world.
- Make in India policy
- Public Procurement Order
- Global manufacturing companies prefer India
- Reshoring Supply Chains to Encourage the Manufacturing Sector
- Government infrastructure development activities are among the major driving factors likely to boost the market over the next few years.
- Government policy change and schemes: The government approved a production-linked incentive (PLI) scheme for 14 key sectors totaling Rs. 2 lakh crores over five years.
- MSME and Local Sectoral thrust: Global tenders being disallowed in government procurement tenders up to Rs. 200 crores, preference to have 50% or more local content. MSMEs (CLCSS) upgrade micro and small infrastructure, enhancing performance and creating demand for more advanced machine tools. An additional budget outlay of Rs.102 billion has been provided for capital and industrial expenditure.
- The auto industry is getting a boost from the GOI schemes like PLI and reshoring the supply chain.
- New sectors offering opportunities: (1) Mobile Manufacturing and Specified Electronic Components, (2) Medical Devices, (3) Toy manufacturing, (4) Drones and Drone Components. The government of India has identified 15 manufacturing sectors as champion sectors.
- Global Capex Investment Impact. The increasing Capex investments across the key sectors (Electronic Goods, Telecommunication, Automotive Manufacturing, Machinery, and Transport Equipment Manufacturing) will increase the equipment demand. This will have a multiplier effect and increase the machining Centers’ requirement to manufacture precision equipment. The global manufactured goods sector is estimated to grow at a CAGR of 3.5% from 2021-2027. The machining Centers market growth is expected to be around 3X (3.5*3X = ~10%) – from the global manufactured goods sectoral growth rate.
- India Capex Investment Impact. The increasing Capex investments across the key sectors (Automotive, Aerospace, Medical, Industrial Machinery) will increase the equipment demand. This will have a multiplier effect and increase the machining Centers’ requirement to manufacture the various precision equipment. India’s manufactured goods sector is estimated to grow at a CAGR of 4.6% from FY 2023 -2027. The machining Centers market growth is expected to be around 3X (4.2*3X = ~12%) of India’s manufactured goods sectoral growth rate. The increase in new Capex investments of around $10 billion YOY across critical sectors (cumulative investment) is expected to support the Indian machining Centers market, driving ~ a 12% CAGR between FY2023 and FY2027.
- Re-Tooling. Significant efforts are being made to upgrade engine technologies to meet the global fuel efficiency mandates and NCAP rating. This will further lead to the re-tooling of the existing machining solutions.
- Industry 4.0, IoT, Digitization, Automation. Digital services in the Machine Tool industry The increase in demand for high productivity, high quality, and reduced cycle time positively impacts the market—integration of CAM. Computer-aided manufacturing (CAM) ensures hassle-free production of micro components, escalating the market’s growth.
- Driver—Growing demand for machine tools from ICE-based automobiles. The growing trend of EVs initially recognized the downward demand in this sector. However, most famous car manufacturers have introduced hybrid technology combining an internal combustion engine and an electric drive. Hybrid technology requires complex processing, as hybrid vehicles require wear-resistant components to switch between an electric drive and an internal combustion engine at high speeds.
- Trends—Adoption of 3D printing technology. International machine tool manufacturers are using 3D printing technology in their machines. Moreover, the adoption of 3D printing technology in the Indian machine tool market is expected to increase as the technology enables compliance with various customer specification requirements. Thus, the development of 3D printing is anticipated to drive the market’s growth during the forecast period.
Critical Success and Risk Factors
Competitive Advantage
- The high level of fragmentation. Machine tool industries, specifically MSMEs, are highly atomized and work in silos, which results in external competitive pressures.
- Most domestic companies are small and have low capital, so the country’s technology adoption rate remains relatively low. The adoption rate remains critical to gaining a competitive advantage and impacts companies’ growth and sustenance.
Operations and R&D
- Manufacturing capability. Expertise in manufacturing technology and R&D to meet customer requirements (both domestic and export R&D) is essential for players to thrive in this segment. Importers/OEMs tend to thoroughly evaluate the company’s production facilities before engaging in supply agreements. Hence, it is a crucial determinant of export growth potential for contract manufacturers (white or private labels).
- High Dependence on Imports. The Indian machine tools industry can meet about 56% of the total consumption. India continues to depend on importing low-volume, high-value, high-technology, and large-sized machine tools.
Supply Chain
- Cost control. With increasing competition from new players (including regional players), incumbents must control costs across the value chain, viz. procurement, manufacturing, supply chain, marketing, administrative, etc. This is important for players to compete effectively in the market.
- Factors, such as rise in prices of raw materials, uncertain raw material delivery schedules from suppliers, and working capital constraints, remain the major challenge for SMEs.
- Most machine tool parts are made of steel. Steel is the most essential raw material, and price fluctuations impact the Indian machine tool market. Raw material prices constantly fluctuate due to various macroeconomic factors, such as inflation, labor costs, and changes in regulatory policies.
- Furthermore, rising raw material prices will burden suppliers. Additionally, fluctuations in raw material prices create uncertainty in raw material procurement plans for some manufacturers, such as machine tool manufacturers. This is expected to impede the growth of the Indian machine tools market during the forecast period. Supply chain, raw material cost fluctuation, delays in delivery, dollar value fluctuations.
Finance
- Financial strength. The pandemic and subsequent lockdown have further stressed small players. However, companies with more substantial financial strength are better placed for future growth and seizing market opportunities.
- Pressure on Working Capital. Most domestic machine tool enterprises are SMEs. They face difficulty due to a lack of funds for skill and infrastructure upgradation. Further, SMEs face working capital constraints that curtail their business expansion capability.
Sales
- Customer reach. The extent of the player’s distribution reach in Indian and export markets plays a crucial role in ensuring the availability of the products at the point of sale. An extensive distribution reach makes cross-selling of related products possible, thereby driving topline growth.
Marketing
- Brand. Brand plays a vital role in communicating the product characteristics to influence customers’ buying decisions and the ability to cross-sell adjacent products. Given the large number of players in the tools and hardware industry, a strong brand presence enables a company to differentiate its products, provides a certain degree of pricing flexibility, and provides relatively more accessible access to newer markets.
Professionalize Management (MBO)
McKinsey’s study finds that India needs to catch up with its global peers in critical operational areas.
- Technical systems, the way the corporate resources are deployed to meet customer needs at lower costs. (End-to-End design, Production Planning, and supply chain management, Quality, systems, processes, and people management)
- Management infrastructure, Formal structures and processes used to manage technical systems and achieve business objectives., for Ex. Business Excellence (Organization design, performance management, talent management, continuous improvement infrastructure, support functions)
- Build new capabilities, mindsets, behaviors, and how people think and feel about their work and conduct themselves in their workplaces. (Alignment, Execution, Continuous improvement renewal)
