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Status quo for diesel engines - Views on News from Equitymaster
 
 
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  • Oct 9, 2000

    Status quo for diesel engines

    It has been a mixed bag for the diesel engines industry in the past three to four years. Lower capacity utilisations and lack of investments in the end user industries have marred the industry’s growth. Going by the happenings in the power sector and other infrastructure industries FY2001 also doesn’t offer much hope.

    The engines industry can be classified into three segments according to their relative Horsepower (HP). These include small range (2-20 HP), middle range (20-300 HP) and the large range (above 300 HP).

    The Diesel engine pie
    Segment Capacity User industries Growth Main players
    Small range 2-20 HP pumpsets, agricultural machinery marginal Kirloskar Oil
    Medium range 20-300 HP tractors, construction, power generation,
    small industrial applications
    7.5-10% Kirloskar Oil, Greaves,
    Simpson & Co.
    Large range above 300 HP captive power plants, large industrial
    applications, IPPS, marine
    10% Cummins, Hindustan
    Powerplus, Wartsila NSD

    The small range saw a marginal growth in FY00. This was because agricultural production declined by 3% during the year (agriculture i.e. tractor is one of the main user industries). Since growth prospects of agricultural production are not too bright in the coming year many tractor manufacturers have decided to scale down operations. Hence, it is unlikely that this segment will see much growth in FY2001 and so is true for Kirloskar Oil Engines, the market leader in this segment.

    The 20-300 HP range i.e. the medium range saw a 7.5-10% growth in FY00, largely on account of growth in demand from services industries such as hotels, hospitals and the telecom sector. The sluggishness in tractor segment slowed down this growth. This segment is likely to maintain its growth levels in FY2001 too. This will bode well for major players in the segment like Kirloskar Oil, Simpsons and Greaves. But the entry of the engines giant, Cummins in the medium and smaller range is likely to make things tough for these companies.

    The above 300 HP range is dominated by Cummins India with a 65-70% market share. The other major is Caterpillar (through Hindustan Powerplus), which holds a 25-28% market share. Warsila NSD dominates the above 1 megawatt (MW) diesel engine segment. The government’s intent of opening up the power sector brought a boom in the number of foreign entrants to this segment in 1995-96. These included names like Volvo-Penta, Perkins, Mitsubishi, Skoda, Detroit Diesel and FG Wilson. Cummins India conceded market shares to these companies initially, but poor after sales service did them in. This and the slow progress of the power sector reforms forced these companies to exit.

    This segment grew at 10% in FY00, backed by large contribution from demand in the power sector. Industry sources expect this segment to maintain its growth in FY2001 too.

    But all said and done, the economic activity has slowed down. During April-May 2000 the growth in India’s index for industrial production (IIP) actually fell to 5.6% from 6.2% in the corresponding period during FY99. Higher oil prices have added to the segment’s woes. The segment can only hope for higher investments in the power sector, which in turn will give rise to demand from other infrastructure sectors too. Until then, the status quo continues.

     

     

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