Machinery
The manufacturing industry, often dubbed the backbone of a country’s economy, is highly competitive and dynamic. This makes it crucial for organizations to make informed financial decisions to stay ahead of the competition. India’s Capital Goods manufacturing industry is a strong base for its engagement in sectors such as Engineering, Construction, Infrastructure, and Consumer goods.
The leading export subsectors of the capital goods sector are heavy electrical and power equipment, earthmoving and mining machinery, and process plant equipment—together, they account for 85% of India’s total capital goods exports.
IIT Madras has launched an advanced manufacturing technology development center to indigenize manufacturing capabilities in India. This center is working with the capital goods industry in India on various aspects, including the intelligent manufacturing platform for production processes.
- Target Production of capital goods will be $ 112 Bn by 2025.
- By 2025, the Electrical equipment industry, comprising generation and T&D equipment, is targeted to reach a size of $100 Bn.
- By 2025, the T&D equipment segment is targeted to reach a size of $75 Bn.
- The machinery and equipment industry faces challenges today, from global supply chain complexities to rising costs and demanding compliance regulations. Despite their complexity, these challenges also pave the way for opportunities. Historically anchored in traditional methods and processes, the industry finds itself at the forefront of a digital transformation. Advanced technologies offer solutions that enable manufacturers to navigate these challenges and maintain their competitive edge.
- This digital shift is not merely about integrating the latest technology; it is about a holistic approach to reshaping operations and mindsets. With the industry constantly being challenged, adopting digitalization and advanced technologies, such as artificial intelligence (AI), has emerged as a critical response.
- The manufacturing industry has rapidly evolved with new technologies, manufacturing analytics, and advanced insights. These advancements have enabled manufacturers to optimize their FP&A processes by leveraging Analytics and Forecasting capabilities.
Industry Scenario. The capital goods industry is divided into subsectors.
Light Machinery
- Machine tools, dies, molds -Dies, molds and press tools, Machine Tools, Parts and accessories, etc.
- Food processing machinery
- Textile machinery -Spinning, Knitting, Processing, etc.
- Packaging machinery, etc.
- Printing machinery, Pulp Making
- Packaging machinery, etc.
- Plant process equipment
- Industrial furnaces and ovens, Heat exchangers
- Storage tanks, z Valves/Pumps, etc.
- Plastic Industry, Rolling machines, Industrial and Agricultural machinery etc.
Heavy Machinery
- Heavy electrical equipment -Generation Equipment (Boilers, Turbines) T&D equipment (Transformers, Switch gears, control panels, etc.)
- Earthmoving and mining machinery -Cranes, Bulldozers, angle dozers, graders, levelers, scrapers, etc.
Industrial Clusters
- Delhi NCR- Tools and dyes, Heavy electrical engineering, Textile machinery
- Surat – Textile machinery
- Pune – Tools and dyes, Heavy electrical engineering
- Bangalore – Tumkur – Machine Tool
- Kolkata – Mining metallurgical Machinery
- Hyderabad – Printing and Packaging Machinery
- Chennai- Tools and dyes, Machine tools
- Coimbatore – Tools and dyes, Textile machinery
Our Services Applied to the Machinery Sector
Manufacturing has real-time operational systems, but finance lacks integration with these systems. The pandemic has brought challenges in financial planning, leading to declining revenue and profitability. Uncertainty makes forecasting financial performance difficult, emphasizing the importance of risk management and insurance policies for machinery manufacturing organizations. Supply chain disruptions and increased manufacturing costs require FP&A teams to develop cost management strategies and optimize operations. Rising costs have compelled many firms to rethink their pricing strategy.
Fintelligence Consultants offers 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
Commercial Excellence
- Customer Strategy
- Sales Strategy and Sales Force Effectiveness
- Pricing Strategy
- Service Portfolio
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.
Fundraising Advisory
- New Avenues for Financing
- Growth Equity (Private Equity)
- Bond and Credit Rating
- Equipment Finance
Analytics
- Sales and Customer Analytics
- Product and Customer Profitability Analysis
- Supply Chain Analytics and IoT
- Financial Analytics
- The analysis is divided into granular levels to understand the issues and synthesize the opportunities.
FP&A with a strong awareness of operational needs and a causal model of economic realities can be a competitive advantage for a company. Expanding the capabilities of FP&A beyond external financial reporting results by developing more robust models for internal decision support and operational systems integration is a top priority.
Growth Drivers
Infrastructure Investments are expected to increase to USD 778.90 Bn in FY 2020-25, which will significantly boost demand for capital goods. Under Budget 2023- 24, capital investment outlay for infrastructure was increased by 33% to 10 lakh crore (USD 122 Billion), which would be 3.3% of the GDP.
- Ageing equipment requires auto replacement, Opportunity for Transmission & Distribution (T&D) sector
- The Capital Goods imports to India are approximately 3X of the exports, with potential for closing the import-export gap.
- Massive power capacity addition in the future, Infrastructure, Power, Mining, Oil & Gas, Steel & Automotive
- Nuclear capacity expansion, a significant business opportunity for the electrical machinery industry
- Production Linked Incentives
- Financial incentives worth USD 26 Bn to promote domestic production in 14 sectors
- Four Centers of Excellence approved by the Department of Heavy Industry in textile machinery, machine tools, welding technology, and intelligent pumps to enhance industry competitiveness
- Global hubs serving India and the world. The global hub theme presents an economic value of up to $1 trillion. India needs to seize opportunities arising from increasing wages, trade conflicts, efforts to strengthen supply chains, growing data flow, rising demand for offshored and nearshored services, increased prosperity, and a focus on health and safety, creating opportunities for producing and selling more goods and services.
- Efficiency drives for India’s competitiveness. The business models in this grouping aim to eliminate inefficiency in areas such as power, logistics, financial services, automation, and government services, potentially generating $865 billion in economic value by 2030. Examples include next-generation financial services, automation of work and Industry 4.0, efficient mining, high–efficiency power distribution, and greater e-governance.
A Decade of Strategic and Operating Model Changes
- How do we develop the customer-centricity needed to ensure our solutions have value?
Your planning should be based on an intimate understanding of your customers’ near-term problems and how they generate profits. Take emissions reductions, a significant current concern for heavy machine operators. Some European countries have signaled that they will require job sites to provide regular emissions reports. OEMs could develop tools to track emissions, which would be helpful for construction customers in these and other heavily regulated countries. - How do we shift our approach to product development and life cycle solutions?
The definition of value in industrial machinery has changed, emphasizing the need for an integrated approach. OEMs now need to consider the services required over the machines’ lifetimes and the necessary digital tools in addition to the physical machines. Next-generation machines should have physical and digital product launches to meet modern requirements. For example, a new elevator design must consider its physical components, compatibility with building operating systems, and the ability to enable digital services such as automatic floor calls based on ID badge scans. - How should we participate in the sustainable machinery segments and digital ecosystems that are taking shape?
This is about staying relevant in the world in which everyone operates today. OEMs should develop scenarios related to the changes their customers will face in the intermediate and long term, especially shifts in sustainability and digital technology. These scenarios will drive OEMs’ participation decisions—what they need to own and where to partner. - What must evolve in our channel and go-to-market strategies?
Companies face a balancing act here. Distributors are necessary for OEMs to reach their geographically diverse markets. However, indirect sales also distance OEMs from their end customers, creating inefficiencies in the OEM-to-customer feedback loop. The industry must move toward more collaborative relationships—OEM to the customer and the distributor. While there is no one-size-fits-all answer to this question, we expect to see significant rethinking and some experimentation in OEMs’ go-to-market approaches. - What changes do we need in our culture and ways of working?
Companies require greater agility to keep up with digital innovation and maintain flexibility. Some of this will involve increasing the concentration of in-house digital expertise. At the same time, there needs to be more cross-functional collaboration. With today’s lines and boxes, the people responsible for sustainability, services, and digital are often in different departments or—worse—are distributed among different product groups. These silos aren’t conducive to rapid-cycle innovation and need to be dismantled.
Challenges
Delving deeper into the industry’s challenges, we can categorize them into external and internal factors, revealing the
complexity of the industry’s landscape.
- Increased flexibility. An increasingly volatile and unpredictable Indian economy requires manufacturers to build more flexible and efficient operating machines.
- Increasing competition from international players also forces manufacturers to spend more on R&D activities, market reach, and finding new ways to improve customer productivity. Industries increasingly demand world-class technologies for better fuel efficiency, higher productivity, and profitability.
- Rapidly changing Market Demands. Customers and industries constantly evolve, leading to shifting market demands and preferences. Manufacturers must innovate and adapt to meet changing needs without compromising quality or efficiency. To maintain profitability, companies can assemble operational excellence teams to stabilize costs by eliminating process constraints and increasing production efficiency.
- Digitization. Industry 4.0 pushes a digital transformation, offering new opportunities to address challenges. Manufacturers must leverage digital technologies for growth and resilience in today’s competitive global landscape. Digitalization involves integrating technologies to enhance value creation, improve efficiency, reduce costs, and drive product and service delivery innovation.
- Rising Operational Costs and Energy Prices. The manufacturing sector is heavily reliant on capital and energy. Energy price fluctuations can significantly impact operational costs and profitability. The industry faces highoperational and maintenance costs and challenges in networking with financial institutions and accessing timely loans for modernization and expansion.
- Service and Product Quality. A comprehensive approach requires providing services and producing quality products to achieve high performance in a competitive business environment. Companies must find new ways to maintain and acquire the leading edge by improving their branding, visibility, and marketing strategies.
- Global Supply Chain Complexity. In an interconnected world, expanding supply chains involve diverse stakeholders across continents, posing logistical, regulatory, cultural, and geopolitical challenges. Globalization intensifies competition, making it harder for manufacturers to stay profitable.
- Access to Capital. The availability of capital will be the biggest obstacle to increasing India’s manufacturing GDP. With an incremental capital-to-output ratio between 4.5 to 6.0 (which could become more favorable with productivity gains), India’s manufacturing sector would need investments totaling $1.0 trillion to $1.5 trillion over the next seven years to double its GDP in the same timeframe, if India also raises its GVA capture in these value chains by 25 percent.
- Sustainability (ESG). Due to global pressure for greener practices, sustainability has become crucial for the machinery and equipment sector. Manufacturers face demands for environmentally friendly machinery and sustainable supply chains. This industry must rethink traditional methods and materials to incorporate sustainable practices throughout production and machinery output.
Solutions to address the Challenges
The Combined Impact of Services, Digitization, and Sustainability
One noteworthy thing about the three trends is how they are converging. Here’s a closer look at each individual and How will its acceleration affect OEMs’ strategies?
- Service-The Shift Away from Products to Solutions.
Industrial machinery companies have been moving in this direction for decades, focusing mainly on aftermarkets. They drive customer value by directly impacting their bottom lines through efficient inventory management and remote machine monitoring to minimize downtime and optimize repairs. Customers have shifted from purchasing products and parts to focusing on outcomes and performance. This trend is evident in the aerospace industry, where manufacturers have moved to performance-based contracts with airlines based on product availability measured by hours flown. - Digitization of Assets and Operations.
Digital technology and more accessible data revolutionize industrial machines by allowing assets to be run remotely in harsh environments. Digital technology can help managers optimize work sites and reduce idle time through real-time asset health monitoring in quarries. Integrating digital technologies is a challenge for industrial machinery OEMs rooted in mechanical engineering, not digital technology. OEMs face decisions about technology, partnerships, and build versus buy choices. John Deere and Caterpillar have embraced the digital space, offering tools for farmers and fleet management for construction equipment. Meanwhile, digital startups like Samsara are entering the market with solutions for truck fleet managers. - Sustainability (ESG)
The third significant trend in industrial machinery involves sustainability. The pressure to reduce pollution and the effects of climate change comes from multiple sources: the public, government regulators, and investors. An example from the public realm is the September 2019 global climate strike. Millions of people worldwide marched and protested to push for action on climate change. Government commitment to tighter environmental standards is increasing, and investors are pressuring industrial machinery companies to have sufficient carbon reduction plans. Companies that prioritize emissions and societal impact now trade at a premium.
