labels: industry - general
Kone Elevators: The accelerated climbnews
10 April 2006

Venkatachari Jagannathan looks at the growth of one of the earliest Finnish investments in India, the Chennai-based Kone Elevators.

Chennai: In March this year A Sankarakrishnan, managing director, Kone Elevators India Private Limited played host to the Finnish prime minister Matti Vanhanen. With a justifiable pride he showed his guest around the South East Asia's largest elevator plant to the prime minister.

One of the earliest Finnish investments in India, the Rs258 crore turnover Kone Elevators, then called Beacon Kone Limited, was started as a joint venture between Kone Corporation and Best and Crompton Engineering Limited as.

The initial years were difficult; in 1992, the company's turnover was just Rs10 crore while the accumulated losses were Rs14 crore. It was then that Kone Corporation infused Rs7 crore into the company and also bought out Best and Crompton's stake.

Ever since then it has been a smooth upward climb for the Kone Elevators. In 2001 the company established a global software centre to develop embedded system software for lift applications.

The year 2004 turned out to be a landmark year for the Kone Elevators. The company, through its subsidiary Tiger Elevators Private Limited, took over the 5,000-unit elevator maintenance portfolio of Bharat Bijilee Limited, which makes the Olympus brand of lifts, for Rs33 crore.

Tapping Indian engineering talent, Kone Elevators set up a global engineering centre to export lift drawings to the American market. In the same year it overtook Otis Elevators to become the number one in the domestic market.

The order from the Delhi Metro Railway Corporation for 150 elevators and 71 escalators, and another order for 18 lifts from the government General Hospital in Chennai along with other orders have boosted the company's top and bottomline in the recent times.

Incidentally, the lift at the rocket launch pad in Sriharikota has also been supplied by Kone Elevators. This lift has been made from special steel so that the heat generated during a launch does not damage it.

"Last year, we grew by 40 per cent while the industry grew by 15 per cent. Our market share is around 28 per cent. And our order book is full for the next two years," says Sankarakrishnan.

The company also exports elevators to Nepal and Bangladesh and some hardware to Singapore. "The exports revenue is around Rs2 crore."

With 15,000 lifts under its maintenance agreement, nearly 20 per cent of the turnover is from maintenance services. According to Sankarakrishnan, the trend amongst the buyers and users is to leave the maintenance work to the manufacturers themselves.

From 200 units to 580 units per month

Consolidating its gains, Kone Elevators has decided to accelerate growth through expansion. It was only last October the company increased its capacity by 2,000 units to 6,000 units per annum. Five months later, the company has embarked upon an expansion programme to increase the capacity to 7,000 units. A substantial escalation from the 200 units per month that the company was making barely two years ago. And with these expansions the monthly output will be around 580 units.

In addition, the company will be setting up a training centre for its services and maintenance team. The total outlay works out to Rs24 crore.

The company's expanded capacity will be around 35 per cent of the total industry size of 20,000 units annually. In value terms, the domestic elevator industry is estimated at around Rs1,000 crore (new units) and the replacement market is around Rs80 crore.

Speaking about the market for the elevators, general manager, marketing and key accounts, B R Chandran says, "The domestic demand is around 20,000 units per year and in value terms it is around Rs1,000 crore."

The north and western regions comprising Delhi, Mumbai, Ahmedabad and Pune are major markets for lifts on account of their high rise buildings. "They would account for 70 per cent of the sales while the remaining 30 per cent is from the four southern states. Amongst the southern cities, the demand in Bangalore is growing. But in general south is not a big market for elevators."

Though Kone Elevators is present in all the segments — commercial (IT parks, hotels, hospitals etc), industrial and the residential — the company sees sizeable demand from upcoming crop of IT Parks. According to Chandran some software companies like Wipro, CTS, TCS, etc insist only on Kone lifts when they build their own premises or when they lease space in a building under construction.

The other focus area is the retail sector. According to one estimate around 800 malls would come up in three years time. Each mall would sport atleast two elevators and three lifts. To cash in on the emerging opportunities like the retail sector, Kone Elevators is negotiating wi6th industrial groups that have announced major retail investments to become the sole vendor for the elevators and escalators for all their malls and outlets.

"The growth in the IT sector in turn has a positive cascading effect in the increased demand from the residential segment," Sankarakrishnan remarks.

However, the growth in demand in residential segments for large companies like Kone Elevators and others has been a tad slow as builders often opt for locally made cheaper lifts.

Adds Chandran, "As lifts are in the common areas, residents are usually not particularly bothered and later get bogged down in the maintenance once they start living."

He however feels that with increasing safety lift and escalator accidents being reported, safety consciousness is increasing. For instance in Chennai, an old lady was trapped and crushed to death between the floor and the lift in front of her husband. In another incident a lift in a high rise corporate building plunged three-floors in a free-fall injuring around 15 people. The building, owned by a financial conglomerate, immediately replaced all the lifts with the Kone Elevators.

"Reading about accidents and experiencing the comforts of good lifts in their office premises, discerning apartment purchasers now look at the elevator brand while zeroing in on a property. And quality builders are changing to lifts manufactured by the big five — Otis, Kone, Schindler, Mitshubishi and Thyssen."

Nearly these five players share 75 per cent of the global demand for lifts and around 8,000 players share the balance 25 per cent, he says. In India there are several small operators, manufacturing lifts. "In Gujarat alone there are around 180 lift manufacturers some making two lifts per month," Chandran remarks.

The other challenge for manufacturers is that each lift, elevator and escalator is custom built. "The lift specifications, features, the button panel, position indicators differ from building to building and even from lift to lift within the same building. We have to coordinate the needed components."

Speaking about the market trend he says monospace lifts (lifts without machine rooms) are gaining in popularity. Similarly lifts without counter weights have a better demand as these carry more passengers, "Seven persons in place of five in traditional lifts. But we are yet to start selling it here," he says. Chandran also hopes to gain from more modernization / replacement orders as many of the lifts installed in the high-rise buildings are nearing the end of their life span.

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Kone Elevators: The accelerated climb