What are the trends in the rental HVACR market?
The rental market in India is highly fragmented and competitive – though it’s still at a developing stage, with respect to the US or Europe. With many customers getting awareness on the buy vs rent model, rental concept is picking-up. Also the economic impetus by the government is at a good momentum from 2015 to the present day. Due to the nascent stage, there is clearly a lack of awareness. This is coupled with the capital equipment mentality in India, which restricts the fast development of Temperature Control (TC) services in sectors such as petro-chemical and refining, manufacturing, commercial, construction and events. So, while these sectors possess a lot of latent demand, it takes a lot of customer education initiatives to reap the full benefit of our TC offerings. The buy vs rent conundrum is still active in India – unlike the developed world where rental options have more acceptance in general. From our own experience of entering the India market in 2009, we could see that the acceptance of TC solutions is growing year on year. The penetration is at a rather low rate given the capital equipment mentality and vast geographical spread out. However, the good news is the market is evolving at a faster pace and the buy vs. rent mindset is changing. We don’t expect this to completely change overnight, consistent efforts are required before a long-term shift is acquired.
The fact that Aggreko has successfully gained long term and repeat customers gives us assurances that TC services has a place in the Indian market, but at the same time we are conscious that further penetration is essential at this stage of business. What reinforces our strategy and TC solutions, are cases like the critical process cooling jobs in refinery and petrochemical setup, the need for augmenting existing cooling during summer, managing capital expenditure constrains or pilot testing. Such experience gives us the confidence that when it comes to TC solutions, a player like Aggreko has customers’ trust. As long as this need remains critical in our key sectors we’re confident that the Indian market will eventually embrace rental TC services.
Please tell us about Aggreko’s Cooling business.
Aggreko has grown from a small local business to a global company providing power and temperature control to businesses and communities around the world.
That’s why, we have our strong cooling portfolio, with chillers, cooling towers, air-conditioners, air handling units, heat exchangers and accessories, in a range of sizes, for an enviable breadth of applications – both in process cooling and space cooling. All are owned and operated by us. This wide range of equipment is modular and mobile, which means they’re all purpose-built for rental, making for simpler logistics, and quick to install and commission. These solutions are crucial during turnarounds, seasonal spikes in temperature, performance improvement, pilot testing, maintenance outages, seasonal demands, emergency failures in permanent set-ups, early project commissioning and delay in delivery of permanent cooling equipment. We have provided cooling solutions for over half a century, making us the longest running business in these services. We have strong presence in all core industrial sectors including O&G, mining, manufacturing, petro-chemicals, fertilizers and other bulk chemical manufacturing. However, the Indian market is a little different when compared to other countries, where it’s still tended towards outright purchase and will take some time to change this tendency.
Our specialised solutions in both TC and power are suitable for all industrial segments like food and beverage, manufacturing, mining, oil and gas and events etc. Also data centers are a current growth area where TC leads an active role. Our adaptive equipment and experience sets us apart from the competition.
What opportunities do you envisage for your company with government’s focus on development of infrastructure projects?
Infrastructure projects is an area where Aggreko has many proven solutions in India and abroad.
In Metro construction, for spot cooling applications in tunnel boring, the customer doesn’t have to take multiple sources for cooling. Instead, the chillers and air handling units can be placed at one place and the cooling can be delivered to required spots using flexible ducting. In the new projects coming up, especially, the commercial buildings as part of smart cities, generally, a huge HVAC load is required. So, naturally they have a longer delivery time. Aggreko can support any bridge cooling application till the capital equipment reaches the site.
The industrial sector offers a steady demand for us. This is because Aggreko’s cooling solutions boasts proven applications in all phases of the industrial sector value chain. Whether it’s pre-production, production, production enhancement or capacity addition, our cooling applications are perfectly suited. Bridge cooling, cooling for pilot testing, process cooling, and summer cooling are just some of the applications we have served in the past. In a nutshell, any boost in the development of infrastructure projects like metro, smart cities or industrial sector is a big boon for Aggreko.
How the Government’s ‘Make in India’ will help the company to expand its footprint in India?
The ‘Make in India’ initiative is helping to attract the FDI and boost the manufacturing and infrastructure sectors with several positive policies coming in related to mining auction, oil & gas domestic exploration, etc. All of these projects will need cooling or cooling along with power as well. There has been a consistent focus on the program from the government side. The 2018 union budget focuses on the themes of rural development, improvement of the agricultural economy and promoting ‘Make in India.’
The support for ‘Make in India’ is in terms of increase in custom duties of select products. These products have been selected where Indian industry already has or can develop manufacturing capacities in a reasonably short time. Moreover, the recent Economic Survey reveals that ‘Make in India 2.0’ will accord renewed focus on ten champion sectors, including capital goods, auto, defense, pharma and renewable energy to push growth in manufacturing and generate job opportunities. The government has identified these sectors that have the potential to become global champions and drive double-digit growth in manufacturing. If you look at these sectors, many of them coincide with the focused sectors of Aggreko’s cooling business. As we support many industries in seasonal spikes in temperature, performance improvement, pilot testing and early project commissioning, maintenance outages and emergency failures in permanent setups and in the delay in delivery of permanent cooling equipment, we will benefit from the ‘Make-in-India’ initiative in general. As with footprints, our fleets are strategically located in Manesar, Chennai, Pune and Vizag. This arrangement helps us to cater to the whole of India in a nimble manner. We have reached places like Assam in the North East to Balmer in the west; Tuticorin in the south to Jammu in the North.
What are the growth drivers of your business?
When it comes to macro-economic growth drivers, the year 2018 and Aggreko have been placed very well in the market. Demonetisation has stabilised in the market, GST has started showing the impact and the ‘Make in India’ initiative is running on the right tracks.
Sectors such as mining and O&G are expected to do well in the short term as there is focus to increase the domestic exploration and production. Good traction is expected in defence and shipyards as well. Specific to the process cooling opportunities in India, the industry is likely to grow at the back drop of investments expected in the process industries on account of high domestic consumption. Aggreko plays a pivotal role where power application and temperature control bridges a gap for many sectors, including manufacturing, oil & gas, mining and shipyards to name a few. In all of these sectors there are also emergency situations, caused by sudden equipment breakdown or natural and environmental disasters where our short term power and cooling solutions can help. Our global presence and experience has helped support customers in all sectors and across the globe, including India. Our major sectors, however, are quite balanced between manufacturing, events, oil & gas, mining and shipping.
What is your outlook for HVACR industry?
The Indian HVACR industry is about 3 billion USD currently, based on our internal research. Growing infrastructure-based developments, technological advancements and increasing tourism are expected to positively influence Indian HVAC market over the next five years. Moreover, extreme climatic conditions, rising disposable income, growing construction activities in both commercial and residential sectors coupled with various government initiatives aimed at improving energy efficiency, are some of the other major factors expected to boost the India HVAC market for the short-term.
