Why purchase when you can rent out the Assets?
The perpetual debate settled.
The construction sector of India has been growing rapidly for decades. Recently there is a significant increase in public spending with respect to infrastructure development owing to the importance given by the government for some projects like:
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Housing for All by 2022 Scheme
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Smart Cities Mission plans to develop 107 cities in different parts of the country
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Road & Railway infrastructure development
Currently, India has nearly 1,263 ongoing construction projects across various sectors and along with that, the growing demand for office space in tier 1 and 2 cities has created a huge demand for construction machinery. But at the same time construction companies are under a lot of pressure to trim down their capital outlay. The solution for this market reality is to pursue the rental of construction machinery wherever possible. A robust rental market would enable construction companies to achieve a better financial standing due to the reduction in project Capex investments achieved by outsourcing the equipment requirement and by improving capacity utilization of available equipment by renting them out when not required. Cost involved in renting an equipment is treated as an expenditure out of which 25% will come back to you when you compute your income tax. Therefore one is able to save a lot as they are not taxed unlike when they purchase a machinery.
There are many reasons for companies to embrace rental options available in the market instead of going for their outright purchase. Some of them are:
Absence of CAPEX investment
- Efficient for short- and long-term needs
Avoids purchase of specialized or sparsely used equipment’s
Effective for short term productivity boost like deadline crunches
Perfect as a backup option during maintenance
Opportunity to reduce testing, maintenance, service needs
- Huge savings against having an inhouse team for inventory carriage, storage, preservation, maintenance and operations
- Savings on banking loan interest of upto 10%
Are you a construction company and does your company buy majority of the equipment & machinery needed to complete your projects? Then it would be beneficial to go through the following questions
- How often do you use your machines or equipment owned by you?
For the equipment’s brought by your organisation, you need to be ever vigilant about their utilisation, ROI, overhead costs etc. But for a rental option, all these questions are out of the equation and you need to simply order & utilize as and when needed, no strings attached. - What is the % efficiency obtained from the Capex investment and does it justify the cost?
For every capex investment on plant & machinery, your organisation needs to analyse the % efficiency i.e. the billable work completed, and profit derived in actual vs the investment as well as over head costs applicable over the functioning of those machinery. For a rental option, it’s a straight forward equation and can directly be matched with your estimate in the BOQ calculation. - How much idle period does the available inventory of machines enjoy?
Many times, the machines remain idle and that state is missed by the entire team. There are cases of equipment’s being rented at one place when a similar equipment is being idle at the yard or another site. Due to poor inter site coordination, decisions are based on plans which many times doesn’t match with ground reality. For a rental option, the money being paid is in plain sight and the chances of it being missed is very low. - How much % of the project cost is spent to keep the machinery functional throughout the year?
If you buy the equipment, you will also need to keep a small team to service the machine regularly. Parts, hydraulics, and fluids must be changed, and technology upgraded. In most cases, this expense accounts for a significant part of the projects expense. With renting, all this can be taken care of by the rental service provider. - Is your equipment always functional when you need them?
As a construction company, you don’t want to keep your labor idle while the equipment arrives or remains stalled on-site. Be it a storage tank or a large excavator, you can rent the equipment with quick turnaround time and on-demand. This saves your time, money, and helps you meet the project targets. - How much transportation cost does the equipment and machinery incur while routinely moving them between different sites?
With a rental, you can let the service provider deliver and pick up the equipment on demand. You don’t need to construct large storage spaces for times when equipment is not needed. The costs don’t end there as for the owned machinery, different departments need clockwork precision to execute and ensure smooth transition from one site to another. - Do you often need the available machinery at the same time at different sites and affect their utilization as well as project scheduling?
Its an uphill task for an organisation to ensure that equipment’s are maximum utilized and then moved to another site. The repetitive nature of work at construction sites makes this objective more difficult. End result of these complications are eventual rental of many machinery despite owning some of them. Rental options solves all these issues and avoids work getting affected due to the unavailability of machinery. - Does the Capex investment affect the smooth functioning of your projects and thereby influence profitability and customer satisfaction?
Heavy equipment such as earthmovers and excavators can take up a lot of investment that will remain stuck until you sell it. And when you sell, you may not get the price that you anticipated. Renting the equipment can save you from this hassle. Even if you are a small company, you can get projects because you have access to all the equipment that a big company owns. This gives you a competitive edge when you negotiate for a new project.