Why Renting Beats Buying
Much has changed since then. “India now has a lot of EOMs offering equipment as well as homegrown brands, and no shortage,” continues Pachani. In the present scenario, he says it makes financial sense for a contractor to rent instead of own a lot of equipment. In fact, he says, “a contractor is actually a service provider, making use of rented equipment as is needed.”
Eliminate compliance headaches
One of the key advantages of renting over buying is the ability to outsource the compliance headache. “Compliance is now a concern for construction companies, which can be eliminated by using the services of certified employees provided by rental companies,” says Pachani.
He cites the example of SCC Infrastructure needing three concrete boom pumps for six months to work on a project that is part of the Mumbai-Ahmedabad high-speed rail corridor. It opted to rent these boom pumps instead of buying them.
“The company opted for a package that included the boom pumps [Ajax make boom placer model A30ZX], a certified driver and an operator,” says Pachani. “Certification covered the licence of the driver and the ability of the operator.”
To ensure optimal performance of the rented equipment, Migoo provides equipment that is “zero to five years old and covers the maintenance for the rental period”.
Focus on your core area
One of Express Equipment Rental & Logistics’ major projects involved dismantling and replacing the kiln shell along with plant expansion for a prominent cement company in India. “Initially, the client contemplated investing in cranes and material handling equipment for the three-year project but after a thorough cost-benefit analysis, it found that renting would offer significant advantages,” says Karan Gandhi, Executive Director, Express Equipment Rental & Logistics.
He explains the decision: Purchasing the equipment would have cost about Rs 7 crore, including taxes, substantially higher than the Rs 3.96 crore rental cost over three years – at about Rs 11 lakh per month. Also, the rental agreement came with complete maintenance support, eliminating the maintenance and repair expenses associated with owning heavy machinery, estimated to be about Rs 2 to 3 lakh per month. Combining logistics services further sweetened the deal. The timely delivery and pick-up of heavy equipment significantly reduces the cost and challenges associated with transportation and storage.
“Saving the capital cost enabled the client to reallocate its funds to other critical areas of the project, such as workforce expansion and quality materials,” says Gandhi. “Besides, renting provided the flexibility to choose the most suitable cranes and equipment, featuring the latest technology, for different construction phases, thereby improving both efficiency and safety.”
He points out that the industry is moving towards focusing on core operations, to successfully complete projects on time and within the allocated budget, and reduce the renting company’s tax burden because rental payments are classified as business expenses.
Outsource micromanagement challenges
Arcelor Mittal Nippon Steel rented out 20 excavators in 2022, which are still in use and expected to be deployed until 2027 for a steel plant capacity expansion project at Hazira, according to Raj Saliya, CEO, Raj Construction, the heavy equipment rental company servicing this need.
“These were mostly the Tata Hitachi 200 model but also a few smaller and bigger excavators for special needs – the Tata Hitachi TMX 20 and Tata Hitachi 70, which work well in confined areas; the JCB 140, which is a best-in-class 14-tonne excavator; the Tata Hitachi 350 for heavy soil lifting; and a few long reach excavators with custom-made long boom and stick attachments for deep foundation and piling work,” he shares.
Despite needing the equipment for such a long project duration, Saliya says that the company (AM/NS) preferred to rent out the excavators because of the challenges associated with micromanaging the operations and maintenance of heavy machinery and the people operating them. “It is much easier to rent out the equipment with a driver and operator, with maintenance also included in the package,” he says.
“They basically tell us what they expect from the operator over a 10-hour shift and we monitor the operations. We don’t need to get involved as long as the work is accomplished as desired. The challenge associated with skilled operators is the lack of a formal way to certify them. This is something the industry still has to work out. Also, there is a lack of experienced mechanics in the industry, and there is also no specific standard way to certify them either. Keeping an excavator in its best shape requires a set of skilled mechanics in hydraulics, engines, welders, etc. We have a full team to service our fleet, which acts as the backbone of our business by ensuring we provide the best-maintained excavators available in the market.”
Saliya says that companies like AM/NS have a policy of outsourcing their heavy equipment needs even for day-to-day operations, not only for expansion projects. An excavator from one of these brands, say Tata Hitachi, would cost about Rs 60 lakh on road, and an operator’s salary would be about Rs 25,000 a month, maintenance up to about Rs 15,000, plus of course they would incur the cost of a maintenance team. In contrast, they could hire the Tata Hitachi 200 for Rs 1,70,000 a month. An excavator’s life is roughly five years; the rest depends on how well it is maintained.
Usually, equipment like piling rigs, vibro-hammers, skid steer loaders, dumpers, transit mixers and excavators are taken on rent, he says. “Equipment such as backhoe loaders, hydras, batching plants, tower cranes, concrete pumps, hot-mix plants, motor graders, pavers and soil compactors are normally bought.”
As for the numbers, “the monthly rental of any construction equipment is usually 3-4 per cent of its value; the idea is to recover the equipment cost within three to five years depending on the type of equipment,” says Joshi.
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