The general elections next year are an important milestone and most industry officials are hopeful the emphasis on construction and creating infrastructure will remain squarely in focus.
The construction equipment (CE) and earthmoving industries are poised for another record year andglobal sales may even cross the one million-unit mark. They were at a record 9,00,000 units globally last calendar year, registering a growth of over 20% year-on-year, so it is not at all inconceivable. The robust growth environment is across markets such as China, Brazil and Europe, and India, with its strong economic growth, and with its push for infrastructure creation, is also a significant emerging growth story with great potential.
However, in the near-term, a majority of the construction equipment companies are experiencing a climate of slowdown in India as the country gears up towards the national elections scheduled for the first half of the year in 2019. Many feel construction activities will pick up pace later.
“The forthcoming general elections in India may affect the demand temporarily during the implementation of the code of conduct but subsequently we expect the situation to restore to normal,” says Vivek Hajela, GM and head of Indian engineering major, L&T’s CE business.Hemant Mathur, senior general manager, sales and marketing, Tata Hitachi, concurs. “Historically, the run-up to the electionshas had an impact on the construction equipment industry and priorities of the government shift from capital investment to revenue expenditure. We do expect the same for the oncoming elections,” he told CT.
Some like VG Sakthikumar, MD, Schwing Stetter, feel India’s general elections will not impact growth trends that have already been set in motion. However, if there is a change in policies after the elections, it can affect the trends for the year 2020 and beyond.
According to Ajay Aneja, Brand Leader, CASE India: “Elections in four states of Chhattisgarh, Madhya Pradesh, Rajasthan and Mizoram in November 2018 and subsequently general elections scheduled in mid-2019 may have an impact on the announcement of new projects which will influence the demand of construction equipment up to some extent.”
For the most part, according to these industry leaders, the growth cycle that started in India is irreversible and the industry has enough momentum to continue on its growth trajectory for the next three to four years. There will be continued investment in the infrastructure sector by the government driven by roads and rural housing.Thedemand for construction equipment is expected to remain robust riding on the ambitious target of roads and highway construction of 45KM/day and progress in other projects such as Sagarmala, Bharatmala, Pradhan Mantri Gram Sadak Yojana,the India–Myanmar–Thailand Trilateral Highway project, etc. “Rapid urbanisation and surging demand for customised equipment are other factors expected to add in the growth,”says Aneja.
Indeed, industry officials expect a period of steady and predictable growth, epitomised by the government’s focus on creating roads and highways across the length and breadth of the country. Manish Arora, who heads Mahindra Construction Equipment, believes, although the outcome of the election may have an impact on the mood, the host of projects already underway will keep the industry going forward irrespective of the results. In fact, says Sneha Sharma, deputy manager of marketing at Columbia Machine Engineering India (Colmac), the market is expecting the government to repeat another five years, “so the initiatives and policies it has earmarked for infrastructure development will continue or may grow further.”
According to Nitin Lall, GM, Atlas Copco (India), it is a very positive scenario for the entire infrastructure segment with extra investment lined in for all areas of core infrastructure such as roads, metro rail, expressway, airports and expansion of existing highways.
A Trump-like victory by the Opposition Could Throw a Shock
However, a few are apprehensive about the outcome of the elections.“If, by any chance, the ruling party loses the election, then the pace, the commitment towards the current development and the level of investment in infrastructure is going to be unpredictable,” said a senior representative in a Bangalore-based construction equipment maker. “In a rare case, if India too sees its ‘Trump’ moment, there could be a setback to the ambitions of the present government, which might slightly hit the investment into infrastructure,” he added.
The CE industry has already gone through its rough period, notably a long patch between 2013-2016. However, with the launch of big-ticket projects, the trend reversed, and the market showed positive resultsriding on the growing demand. Roads, railways, power, renewable energy, ports, irrigation, real estate, telecommunications, mining, oil and gas, industrial and environmental technology, etc., have all driven the business so far. Indeed, the growth has come from all segments.
According to an ASSOCHAM-Feedback Consulting joint study, demand for Indian Construction Equipment grew by 24% in FY 2017-18, up from 13% in FY 2015-16, and the sector crossed 90,000 units for the first time due to increase in infrastructure expenditure. This growth trend is further expected to continue. According to the report titled “India Construction Equipment Market by Segment, by Product Type, Competition Forecast and Opportunities”, during FY 2012-FY 2024, the CE market is set to grow at a compounded annual growth rate of 6.8% as the construction sector is on expansion mode. Easy availability of finance, positive sentiments and replacement demand will further help in the growth.
|Year||Growth of CE Market|
|FY 2012-2024||6.8% (Estimated)|
Broad-based growth is expected in all four major segments within CE, namely earth moving, road construction, concrete and material handling. The combined sales of these four equipment types, which dominated the market, increased by 37% in 2016 and 17% in 2017. Of these, backhoe loaders, crawler excavators and mobile cranes accounted for 76-79% of the total market during 2013-2017. The share of mobile compressors, compaction equipment and wheeled loaders remained in the range of 16-17% during the same period. The industry expects these sectors to continue to drive volumes.
In 2017-18, the National Highways Authority of India (NHAI) awarded 15,000 km of road projects, valued at Rs 1.2 trillion, an all-time high. In fiscal 2018, 28 km of roads were constructed every day, more than double of what it was done in 2014.
IoT, AI in CE
Construction equipmentmanufacturers are an innovative lot so it is no wonder they are in tune with the latest trends sweeping across the corporate sector. The internet of things (IoT) and artificial intelligence (AI) are the next big things in the construction technology industry, which will help unlock the productivity related issues of the sector, says experts.
Telematics is becoming an inseparable theme in today’s AI-driven technology.For example, Case India has introduced Eagle Eye Telematics System, a real-time vehicle tracking and communication ability, based on GPS technology. Then, there is Fleet Link, a connectivity (telematics) solution from AtlasCopco, which offers remote insights in the vital statistics of their customers’ portable air compressors onsite. Volvo has developed CareTrack, a telematics system that gives owners access to a wide range of machine monitoring information and generates a multitude of reports, delivering data on aspects such as fuel consumption, operational hours, geographical location and more to help save time and money.
CASE India’s soil compactor is another example of tech-efficient machinery equipped to provide information on amplitude, frequency and ICV (intelligence compaction value) – information related to density of soil compacted.
Atlas Copco’s HiLight V5+ LED light tower, illuminates an area of approximately 5,000 sqm with an average brightness of 20 lux, which ensures sites are brighter, safer and more productive. The company also plays a pivotal role in the irrigation segment to provide water for drinking needs where its portable compressors are successfully deployed in large irrigation projects.
Volvo’s Co-Pilot, offers a range of intelligent machine services – including Load Assist, Haul Assist, Pave Assist and Dig Assist – to help operators deliver higher quality outcomes, in less time and with less effort.
Recently, Volvo unveiled the world’s first fully-electric compact excavator, the EX2, which is equipped with electric drive systems and electromechanical linear actuators. The LX1, while not fully electric like the EX2, is a prototype electric hybrid wheel loader.The company also showcased the HX1, a prototype autonomous, battery-electric load carrier.
Tata Hitachi has developed machine health monitoring systems, which enhances overall equipment efficiency and productivity, and closer supervision, which in turn leads to training, systems, and maintenance procedures becoming increasinglycustomised for the site where the equipment is working.
Some of the issues faced by the CE industryinclude, a funding andliquidity crunch, statusof the CEMM Act and emission norms, a shortage of skill and talent, Chinese competition, an import duty hike and policy delays, among others.
According to Tata Hitachi’s Mathur, short term liquidity crisis has hit NBFC funding which is the mainstay of the industry as more than 80% of the equipment are funded by NBFCs. “They have turned very cautious and there are some issues in timely payments. However, things seem to be settling down,” he said.
Infrastructure funding is another major issue, due to which housing, roads, ports and airport development get subdued. “Even the Bharatmala project, which is the most prestigious project has not picked up the pace it should have because of lack of funding,” says Sharma of Colmac.
The government has floated the CEMM (Construction, Earthmoving Material Handling and Mining Machinery) Bill to promote the use and manufacture of such machinery in India; to promote education and training to develop a skilled workforce; to improve the operational safety and emission aspects of such machinery; to promote safety and health and protection of the environment by reducing air pollution; and to provide a framework for continuous improvement and progressively higher standards of safety and emissions of such machinery.
There are regulatory changes to emission norms coming up in 2020 and 2021, and the industry is gearing up to the challenge of meeting these. “The industry is worried about the regulatory emission norms for tracked equipment that is expected to come in 2021 and the status of the Construction, Earthmoving Material Handling and Mining Machinery (CEMM) Act. We are taking both these issues through our industry association ICEMA so that there is certainty and adequate transition time to meet marketand statutory needs,” says Mathur.
Next, a shortage of skilled manpower continues to be an issue with the industry, he said. Many initiatives, some by the government alone, and some in partnership with the industry, have been started to up-skill resources in running, operating, and also manufacturing equipment. But there is a concerted effort that is needed on a much wider scale. India will need around 76.5 million strong workforces for its building, construction and real estate sector, according to a report by the National Skill Development Corporation (NSDC), a government body set up for just such a purpose. The shortage of talent in the construction industry is a long-term problem that needs to be addressed with better education and training. Skilling and reskilling are a huge area where Government of India’s support is required to streamline and fulfil the objective to skill 2 million operators by 2020.
“The potential shortage of skilled workers is an issue that both Volvo and the Indian industry faces. In order to address this issue, we launched The Operator Champion competition in India earlier this year to highlight the importance of skills development in the construction industry and the vital role equipment operators play. The competition is run in countries across the globe and its inaugural edition in India wrapped up in March this year,” said Volvo’s Krishnan.
Indeed, across the industry, companies are doing what they can to meet their immediate requirements. “As part of Schwing Stetter India’s vision of empowering our esteemed customers with knowledge and expertise, an exclusive training centre was setup in 2004 at our HO and Works to address the issue of skilled manpower shortage,” said Schwing Stetter’s Sakthikumar.
Last but not least, there is a need for even greater concerted policy-making. For instance, says Arora, the push for favourable land acquisition policies and fast clearance of pending projects are some of the other measures that can be further taken by the government to provide a boost. Indeed, India is a large market with over 1.3 billion population. Expected to become the third largest economy in the world, there is huge requirement of infrastructure. With the economy growing at over 6-7%, the potential is huge. Consider the fact that the demand in China is in excess of 200,000 units compared to less than half that number in India. It is only with more programmes for infrastructure creation that the growth in India can aspire to reach greater heights.
“Meeting the needs of wide spectrum of customers is in itself a challenge”
GM & Head, CE Business,
Larsen & Toubro Limited.
Vivek Hajela, GM & Head, CEBusiness, Larsen &Toubro Limited says the company is working to align the buyer market to premium, in line with global standards.
What is the growth outlook for the CE industry in the near-term?
The industry in India has witnessed an average growth of about 25% over the last few years and the industry is at its current peak. We see a continued focusof the government on Infrastructure development. The budgetary allocation in the next fewyears for infra development is expected to be over 10% and this will continue to drive thedemand for CE. During Excon, ICEMA commissioned a study by Feedback Consulting which hassuggested a positive growth of about 10 to 15% for the next few years. The forthcominggeneral elections in India may affect the demand temporarily during the implementation of thecode of conduct but subsequently we expect the situation to restore to normal. The roadsector alongwith quarry, mining and irrigation are the key demand drivers ensuring goodhealth of the industry.
What are the key issues faced by the industry? How would you like to address them?
The industry has a mix of buyers, from those looking for the premium category machines andothers for the economy priced machines. Meeting the needs of wide spectrum of customers isin itself a challenge. L&T and Komatsu operate in the premium segment and are working closelyand consistently to align the markets to premium in line with the global standards. We offer alot of initiatives to customers to encourage them to buy our premium machines.
These includeExtended Warranty Programme called Suraksha 9000, the machine exchange programme, componentexchange programme and a range of service options. We are also working towards easier owningoptions for the customers to help them get the benefits of premium machines at easy cash flowoptions.
Citing examples, please highlight how the new generation equipment are becomingmore user friendly, safe and sustainable?
Komatsu machines are a result of the cutting-edge technology and come with the inbuiltKomtrax, the ICT health monitoring system, which helps the owner in tracking the machinesand using it more efficiently. Our new launches PC300LC-8M0 and PC350-8M0 are premiumcategory machines in 30-ton class that address the specific requirements of the quarry, stoneand marble industries in India. These generation next machines are robust, have toughenedstructures in arm-boom and undercarriage with high productivity and long life of machine aswell as its components. Komatsu products are safe, reliable and operator friendly and are mostsought after in the core sectors.
“Technology has played a major role in bringing communities together”
President & Director,
Columbia Machine Engineering (I) Pvt. Ltd.
Ramesh Babbar, President & Director, Columbia Machine Engineering (I) Pvt. Ltd. says, despite India’s lower cost advantages, it’s a competitive market due to the presence of Chinese and Korean companies.
What is the growth outlook for the CE industry in the near term?
General perception is that as the time approaches nearing elections, business getsaffected. It either gets stalled or slowed down due to instability as seen by the public. In myopinion, this time it is predicted that same government may continue. The initiatives, policiesthe government has earmarked for infrastructure development will continue or may growfurther. For example, road building sector is gaining momentum. The biggest driver for this isgovernment’s ability to create a win-win situation for Indian as well as global infrastructurebuilders. The growth plan for construction equipment looks positive. This indicates that therewould be enough work for infrastructure companies and so will be the need for high quality,high technology equipment to cater to this demand.
What are the key issues faced by the industry? How would you like to address them?
We face a lot of competition from Chinese and Korean companies. Despite the currentincreased domestic capacities, low-cost foreign manufacturers still give tough competition insome segments. Construction industry has, for some time, been witnessing strong growth interms of large spend on housing, roads, ports and airport development but this growth getssubdued, the main reason being stalling of some big projects due to various reasons.Even themost prestigious Bharatmalaproject hasnot picked up the pace it should have because of lackof funding.
Citing examples, highlight how the new generation equipment are becoming more user-friendly,
safe and sustainable.
Technology has played a major role in bringing communities, businesses, buyers and sellers close together and connect. All our machines are fully automatic,which makes it easier for thecustomers to get desired outputs. We have taken initiative to train our customers staff forrunning the machines. We have a team of trained skilled service engineers.Lots of customershave taken advantage of the offer and their operators are able to run successfully ourequipment. We can say we have user-friendly machines, once the operators aretrained. We have over 250 customers spread across India. Our engineers are highly appreciatedby the customers for the after sales service.
Is India a low coast manufacturing base for your company?
Even though Columbia Machines Inc, the parent company of ours is more than 75 years old inthis business, we started manufacturing in India only in 2006. We supported the Make in India initiative of PM Modi by investing inmanufacturing from India. All our equipment is made of very high-quality precision andmaintenance standards and gives us an advantage over other European companies, who mainlyimport their equipment. We pass on the benefits to our customers. India is known for highquality, low-cost manufacturing.