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"Hire it out" is a company engaging in renting construction equipment machines, it will be operating business from Faridabad (Haryana, India). The company will be operated by a father and a son, Mr. Jai Raj Sharma and Mr. Ishan Sharma. We will be the first one to start renting construction equipment machines in a northern India; this will be bringing an opportunity for company to exploit the market and to be a market leader. "Hire it out" will be operating business on the no frill strategy to attract clients from all the segments of the industry. The target clients of the company will be from power, thermal, infrastructure and rail sector. The business will be sustainable and profitable because of the large demographic and infrastructure growth in India. In a report issued by Government Of India, it is mentioned that Construction Equipment manufacturing sector is contributing 8.5 % to the GDP of India and which will be increasing its contribution from year to year basis (Business maps of India, 2009). With the increasing contribution of construction equipment sector it's been predicted by the "Foundation of Indian brand equity" that the rental of construction equipments will be increasing its contribution from 2% in the year 2001 to the 9% by the end of the year 2010 (Vimarsh Bajpai, 2008). The industry in which the company will be going to operate is highly financed and benefited by the government in terms of the subsidy and commercial tax structure. "Hire it out" will be having a highly skilled management which will be having administration knowledge, industry intensive knowledge with a blend of experience in market research. The company will be located in an industrial zone. The core strategy of the company will be to add on the variety of equipments so as to be a step ahead from the competitors.
Hire it out has a certain goals, which we want to achieve in the coming years. These are as follows:
Creating awareness about our services.
Creating a huge customer base.
To start generating profit and start expanding business from local community to national community.
Introduction of new equipments and bringing variety of brands with generation of profit.
But the prime aim of my business will be to create a brand image, which should be synonymous to the quality
"Hire it out" vision is to serve national community in the future with portfolio of expanding business from equipment rental to consultation and finally to the maintaince with a majority of the market share.
1.3 Business ownership
The business will be a joint venture between me and my father. We will be having equal shares in the business.
1.4 Key asset of the business
The key asset of the business will be my co-owner; he has a master's degree in Mechanical Engineering with an experience of 30 years in construction equipment industry. His experience and presence in the equipment industry will help the business in creating a huge customer base. Moreover his technological skills will also help the business in bringing down the operation cost in terms of the maintaince cost and consultation cost, otherwise which would have been hired by the business for the guidance.
2.0 Company Overview
"Hire it out" will be basically involved in giving construction equipments on rent. The business will be basically involving machines like forklifts, vibrator roller tower cranes and excavators. We will be buying these machines on the basis of their durability, efficiency and the after sales service. The choice for the brand of equipment will be entirely on the basis of a customer perspective, which will be decided through a survey via questionnaire.
The business will be operated from the two distant places one will be the head office and other will be the garage. The head office will be dealing will all the clients, where as the garage will just for the purpose of the repair and for the delivery work. The office and the garage will be on the lease to cut down the fixed expense. The business services will be available 24 hours throughout the year, as the equipments are required for a longer duration for maintaince and for building purposes. "Hire it out" will be employing five employees from the local area and will be positioning them in various ground floor duties. The company will be contributing at local level, as it will be employing local people and the revenues generated from the business will be within the local community.
"Hire it out" will be operating from an industrial area in Faridabad. The biggest advantage of the location is that it is on the periphery of the three metropolitan cities, which would help the company in providing services better and faster. The location also provides tangible (cheap labour, power and logistic cost) and intangible benefits (good law and order situation, favorable law and order situation) which play an important role in setting up of a business (Haryana Government, 2008).
Moreover the location of the business site is well connected with all the major roads leading to metropolitan city.
3.0 Industry analysis
The construction equipment rental industry in India is a competitive industry though it is at an embryonic stage. As per the survey conducted by the leading auto magazine, it predicts that there is a plenty of room for other investors to invest in this industry as various development program are been carried throughout the country for example highway projects in northern India, Common wealth games in the year 2010 and power plant constructions in southern India, which will require equipments to be hired on rent (Abhishiek Parekh, 2007). The industry is also a large source of employment, it employs nearly 2 million people and it is forecast that it will be employing another 3 million people by the end of year 2015 (Vimarsh Bajpai, 2008). The industry is so far not organized only one fourth of the sector is organized where as rest of the portion is still need to be organized. The industry till date has just two major contractors renting equipments on rent; they are "Quippo rental service" operating from Kolkata and "Sanghvi Movers" operating from Pune. Till date, there is no international firm renting equipments on rent in India. The industry also accommodates various small scale contractors renting equipment on rent but they are not employed on a commercial scale. The equipment rental sector has number of hurdles to be crossed as they do not have any support so far from the Government in terms of the environmental policy and structural support. The industry is still growing without any support from Government (India Mart, 2003).
3.1 Trends in the industry
In the coming future the industry has a positive prospect as it is inducing major players like JCB India, Volvo and Tata to enter this field, which so far are indulge in manufacturing these machines. But there is a dilemma for them to enter equipment rental industry as they do not want themselves to be competing with their own customers (The Hindu, 2008).
The industry follows a simple trend; they give equipments on rent for months to years depending upon the duration of the projects and its prerequisite. The duration of charter can vary from hours to a day as per the demand. The industry has a very unusual trend that the bigger equipments are taken on a charter for a long duration of a time as compared to the small equipments which are just hired for a hour or a day. As in India there is an infrastructural development going on, it requires big equipments like tower crane in comparison to the small equipments which are just required for the purpose for the maintaince (Abhishiek Parekh, 2007).
3.2 Opportunities in rental equipment industry
There is lot of opportunity in this sector to excel, as the present scenario is supporting the investors to invest in the equipment rental business because of the low interest rates and financial support offered by the Government, which will help to establish the business. Moreover with the current boom in the mining industry there is a liner growth in the equipment rental business. Furthermore with the formation of united "Rental Association of India" there is an organized structure which is governing for the rights and benefits of the industry from the government, this will bring an opportunity to do business (Rajiv Sethi, 2009). According to the survey there is a huge shortage of construction equipments to be rented, which has resulted in a high hiring price and which has hooted up the equipment rental market by 30% and this has generated lot of revenue for example L&T is hiring construction equipments and is paying 25 crores a year, so it is a good opportunity to indulge in this business (Shilpa Shree, 2007).
Presently two firms are operating within India but from the distant places. One is "Quippo rental service" operating from Kolkata, eastern part of India, who are indulge in renting machines only for the purpose of building (towers, malls etc) that to in their own native place. The other firm is "Sanghvi Movers" operating from Pune; central part of India, they are basically employed in renting machines only for the highways project (Rajiv Sethi, 2009).
In Faridabad there is no threat of competition from any of the major competitor as the market is too big and which is in need to be nurtured. Moreover in northern India there is no firm indulge in giving construction equipments on rent. In northern India the market is still not mature in terms of the customer and the requirements, so it provides me an opportunity more than a threat or competition.
4.0 Products and Services
"Hire it out" will be involved in giving small as well as big equipments on rent for the maintaince and construction purpose. The products offer for the rent will be;
The services provided by the company will be picking and dropping up facility of equipments from the site without charging any money with the insurance cover if there is any damage at the site.
4.2 Future products
With the growth in the business, "Hire it out" will increase the range of equipments from stone cutting equipment to skid steer loaders and will bring in the brands like caterpillar and komatsu.
4.3 Unique selling proposition of the product
The unique selling proposition of company (product) will be the faster, cheaper and better services with no additional cost or fine for delaying in delivery of rented equipments. We will be providing free of cost mechanical assistant if the machines breaks down at the site. Moreover we will be providing the corporate discounts to our entire loyal customer to retain them. In addition to this we will also be providing the trained operators which would increase the efficiency of the operation and will reduce the lead time which leads to high cost, this will be the sole factor which will motivate the consumers to opt for taking machines on rent
4.4 Competitive edge
Hire it out will be having advantage in terms of the new efficient machines, which would be latest in technology and this would be adding differential advantage to company over its competitors. Moreover company will not be charging for the registration which other competitors charge and company would be providing facility of toll free assistance, which no one so far has practiced in equipment rental industry in India (India Mart, 2003).. The co-owner of the business will be giving free consultation to the consumers regarding the technical aspect of the work; this would bring an extra edge to our business.
5.0 Market research and potential market Growth
In a survey conducted in the year 2007, it was recorded that the construction equipment rental industry had a market share of just 7% of the total equipment industry. It is predicted that it will rise to 9% by the end of the year 2010.
In a report issued form the Mckinsey in the year 2009 it was pointed out that the ratio of the organized equipment rental business to unorganized equipment rental business is 70:30 and in future the ratio of organized sector is expect to increase by 90:10 with the formation of "Rental association of India" (R.S Desai, 2009). The market share of the Quippo rental service is around 55-60% where as Sanghvi Movers has a market share of 30%, where as rest of the share is distributed among the unorganized sector, which so far has not registered to the "Rental association of India".
The survey conducted by the Mckinsey differentiated the industry as per there requirements of the construction equipment machines in terms of the percentage. It was recorded that the power sector tops in the list of hiring machines, they hire 41% of the machines and second in the list is wind energy sector, which hires 19% of the machines. They are accompanied by the cement industry which has a hiring share of 12% and steel industry with a hiring share of 10%. It is noticed that with the construction of the metro rail projects in India this sector has also started hiring machines with the mighty share of 4% and rest of share 6% are hired for small purposes like maintaince and miscellaneous works (R.S Desai, 2009).
Whereas the potential growth of construction equipment rental is concerned, it will increase its revenue from the year to year basis. It is recorded that the construction equipment rental industry is worth $2.3 billion in the year 2009 and it is expected to grow six times in comparison to the existing worth of $2.3 billion to $13-14 billion by the end of the year 2014 (Murray Pollok, 2009).
5.1 Penetration parameter
The system for monitoring growth in market penetration is entirely based on the two parameters. These are state of economy and the current infrastructural development. Indian economy is directly related to the growth of the equipment rental business as it provides a source to penetrate in the market by supporting firms, in terms of tax benefits like RTO( providing same interstate tax structure throughout all states in India) and by providing the import duty exemptions for construction equipment. This helps in matching the earned revenues with the assets invested in the business. Whereas the infrastructure development is indirectly related as it depends upon the national market, if the market is in boom numbers of machines will be hired, if there is a situation like recession the hiring of equipments comes to halt. It also depends upon the global market (KRC, 2007).
The demand in the market can be modulated by our business by taking an advantage of the joint alliances with the manufactures of the construction equipment machines. Who will be suggesting our name in the market as we will be buying machines from them. It will be a two way communication channel; we will buying their products and at the same time will be promoting their brand in the market. On other hand they will be doing word of mouth promotion to their clients for our business. This will help out business to deepen our roots in the market to generate revenues.
5.2 Market research method
The data for the primary research was collected through the questionnaire, where as some secondary data has been used, which is collected from the government agencies websites.
5.3 Questionnaire analysis
The questionnaire was prepared and was distributed to 50 people out of whom 31 people replied, it was analyzed that maximum number of people were in the favor of hiring equipment instead of buying it and the brand they preferred most was ACE. It was also analyzed that all the people wanted the driver as a complimentary service without any charges.
Hire it out" will be charging Rs 500 per hour for the each usage of the machine, which is very less as compare to the price quoted by the competitor and the price quoted by the business is competitive in terms of sustainability and profitability.
6.1 Target customers
"Hire it out" in the initial phase will be just serving the power plant in Faridabad, as there is one thermal power plant, which hires majority number of equipments on rent and second will be the local constructors, as Faridabad is going through the infrastructural change, as in future it is going to be an IT hub.
In the future company customer's base will increase from local to the national level; company will be serving metro rail industry, steel industry, and cement industry and wind energy sector. The company will be serving all these industry as the funds will be more easily available with no cash flow problems. Moreover the loan taken by the business will be paid, so it will be easy to diversify all the assets for the nurturing of new market.
6.2 Marketing strategy and implementation
My business strategy will be to add on my knowledge, personal experience and a blend of marketing skills to cater customers' needs. So that we can be a pioneer in this competitive industry and create a brand name, which can be synonymous to construction equipment rental industry.
At the present time, marketing is an important tool. It is not only about creating a brand image but also about creating a relationship with customers. The marketing strategy of the company will comprise of both these factors. It will be using traditional as well as latest method to advertize the services. In traditional method It will take part in the festivals, local shows and national trade fairs like "India trade fair" to show case the variety of construction equipment hire it out has, will also bring in the use of magnetic stickers which can be placed on cars and trucks, will also use business cards. "Hire it out" will be putting banners, logos and slogans throughout the town to create awareness and to make population know that we are the trend setters in this field.
In latest method of advertising "Hire it out" will be placing digital ads on buses and trains and will also be using mouth of mouth advertising.
To build relationship with customers hire it out will be giving out discount coupons as a reward, if the current customer refers new customers to the business. In addition to this "Hire it out" will be sending customers a feedback form, so that they can know about the experience, expectations and changes they would like to bring in business.
In the initial phase of the marketing, company will be focusing more on the local community as the business needs to be established. For this the company will depend upon the local print like local newspaper, pamphlets and local television channels. Company will also be using direct mailing method and will send mails to local population with discount coupons.
In the advance stage of the business, when business starts generating profit then only company will bring in the use of internet for advertising of the business. As it is very expensive to buy a domain and to hire a web designer to create a site.
6.3 Budget for the advertising
Hire it out has a budget of Rs 100000 for the advertisement and for the promotions of its products
6.4 Warranty policies
If any kind of a machine breakdown or technical problem will be there at the site, free assistant will be given with no fine or the charge. Unless there is a physical damage to the machine. If there will be any physical damage to the machine then the repair charges will be taken from client as per the contract guidelines.
The company will be having no showroom for the display of the machines, there will be a catalogue from which a client will require to choose a machine as per there requirements. After choosing the machine contract would be signed with a client mentioning all the terms and condition, if in a state clients returns machine prior to the deadline they will be charged extra for that, as the machine would be idle for that desired period of time, which would ultimately be loss for a company. Machines will be kept in a garage; from there they will be directly delivered to the site mentioned by the client within the specified time period.
7.1 Information flow
The business financial will be managed by the owner of the business, where as the marketing and dealing with the clients and government department will be done by the co-owner of the business. The process manager will be working on the instruction given by the owners. He will be looking after the inventory and the human resource part; he will be the one who will be distributing the duties to the supervisor and the drivers. The problem accounted on the site will be deal either by the technical supervisor or by the process manager. Supervisor role will be to look after the maintenance of the machines and at the same time imparting training to new employees. Supervisor will be in charge for keeping the records of the driver and making performance report, which would be further submitted to the manager. Quality department will be under the surveillance of both the owners.
7.2 Quality control
All the services delivered to the client will be followed strictly on the guidelines issued by the BISC (Bureau of Indian Standards) and by the council of national manufacturing industry (Nayantarra Lama, 2009).
7.3 Equipments required for the efficiency of the process:
Garage for the maintaince work of machines.
Delivery truck- to deliver equipments to the site.
Inventory record system- to look after the sales and the finance part from the day to day basis.
8.0 Personnel expand
The business will be a joint venture between a son and a father, Mr. Ishan and Mr. Jai raj. The owners are qualified mechanical engineers, Ishan has work experience of 2 years and Jai Raj Sharma has an experience of 30 years in construction equipment industry. Moreover Mr. Jai raj is also a consultant for the multinational companies. The manager hired by the company will be a qualified industrial engineer with an industry work experience.
Training will be given to employees on the regular basis as per the current demand in a market. Training will be given to them through the government bodies like Institute of Industrial Engineering, which specializes in the work-shop training courses.
8.1 Organizational chart
Jai Raj Sharma
Process in charge
9.0 Financial implication
"Hire it out" will require a total investment of Rs 70 Lakh, out of which Rs 20 Lakh will be the personal investment. The loan will be taken from the Government sponsored bodies, which supports young entrepreneurs. The loan will be taken either from the private equity firms, which give loan on the basis of feasibility and profitability of the business plan against that they take some desired amount of share in a company and other way will be taking loan from the Non banking finance corporation, they provide loan to young entrepreneurs against that they take all the equipments and the accessories installed in the firm.
If there will be any kind of a financial shortage in-between the execution or the processing of the plan, "hire it out" will take financial support from the SIBDI (Small industries development bank of India).
The advantage of approaching SIDBI is that they gives you payment for the bills (bill discontinuity facility), which no other bank or private equity firms give. In addition to this, SIDBI provides more facilities like finance for the capital expenditure and working capital, these facilities provided by SIBI would help the business coming out from all the financial problems.
The 50 lakh Rupees will taken as a loan from the Private Equity firm for the duration of 5 years @ 8% per annum. The machines will be bought for Rupees 50 lakh and Rupees 10 lakh for the pickup van and furniture. Depreciation cost for the machines and furniture will be 20% per annum, which will be Rupees 12 lakh per year.
Statement Showing Multiyear Profit and Loss Account of "Hire it Out"
Cost of Sales
Salary to co owner
Salary to Manager and employees
Rent of the Premises
Interest on Loan
Advertisement & Publicity
Statement Showing the Multiyear Cash flow of "Hire it Out"
Cost of Sales
Salaries for Manager
Advertisement & Publicity
Payment of Loan
Net Cash Flow
Multiyear Balance sheet of "Hire it out"
Furniture & Fixture
Machinery & Equipment
Vehicle & Pick up Van.
Loans from bank
Total Net Asset
Capital and Reserves
Break Even point and PV ratio in respect of Hire it Out
Fixed Cost (Rupees)
Variable Cost (Rupees)
Selling Price per unit(hour) (Rupees)
Veritable cost per unit
Fixed Cost +Profit /Sales
2612000+1562000 /5400000= 76.63 %
Break Even Point (Sales Volume)
Fixed Cost x Sales /Sales-Variable Cost
2612000 x5400000 /5400000-1262000 = Rupees 3408603/ Year
Break Even Point in terms of unit
Fixed Cost/Sales per unit-variable cost per unit
2612000/500-116.852 = units (hours) 6817.21 Units per year
There can be a negative impact on the company performance and revenue if there is a change in the interest rates and instability in the economic market. The factors like recession and down turn in the infrastructure sector will directly impact the company growth to negative.
10. Action Plan
Date of execution
Clearance of loan from private equity firm
Membership of small scale industry
Licensing from BISC and ISI
Seeking benefits in terms of subsidy from government
Taking shop and garage on lease
Buying of machines and equipments
Buying accessories for office and garage and there installation
Advertisement for the jobs and starting of recruiting process
Promotional campaigns and website development
Training of the employees
December -January 2011
Opening of the business
Questionnaire: "Hire it out" is firms engage in giving construction equipment machines on rent, it is set up in Faridabad (Haryana, India).
Question1: Which type of equipment you like to hire?
Vibrator roller & compactor
Question2: Which brand you like most in the construction equipment machines, as per you requirement?
Question3: For what purpose you need the construction equipment machine?
Reclamation of land
Question4: How often you hire machine?
Within a week
Within a month
Within two month
Question5: From where you are?
Question 6: Do machine driver cost be charged, while renting machine?
Question 7: Do free of cost mechanical assistance be given, at the time of machine break down at site?
Skilled work force
Different variety of machines
Proximity of services to both rural as well as urban area
Insurance of all machines and on site consultation
Free machine operator
Location of the site
Entering in highly competitive market
Dependence on government policies
Easy availability of plant location ( use of older plants)
Scope of liner growth
Financial support at lowest rate from institutions supporting young entrepreneurs
Easy avaibality of taking machine on lease
Increasing awareness of rental business
High probality of switching of customers
Entry of major manufacturing players in equipment rental business
Competition from the small firms (Unorganized way of business)