We will focus aggressively on localization as a national priority.

Liquidity and availability of construction workers in the market continues to be an issue.

- Vivek Hajela, General Manager and Head - Construction Equipment Business, Larsen & Toubro

What new measures have you implemented to contain costs and optimize operations amid this pandemic?

We made a realistic assessment of the demand for excavators, wheel loaders and compactors in the market, considering scenarios with various lockdown durations, factoring in inventory of products and accordingly revised the production plan, both at Komatsu and L&T factories. We reopened operations in a phased manner to ensure health and safety related precautions and increased the attendance gradually depending on the workload to contain overhead expenses.

We are focussing on visualization of entire supply chain - lead time reduction of import and local parts procurement, logistics management and Kaizen (Continuous Improvement) activities to maximize operational efficiency and optimize cost. Measures are taken to reduce inventory at all levels (WH stock, WIP & FG) to avoid inventory holding cost and associated period costs.  We have utilised the lockdown opportunity to launch many improvement ideas, suggestions and discussed them virtually to simulate them for implementation. It will help us to bring in significant improvements in the future.

Brief us on the measures taken to support your customers during this crisis and what innovative, value-added products / service support you have added / aim to add?

We have been focusing on after sales support to the customers during the pandemic crisis. Our product support teams have been active, rendering service and supplying parts pan- India wherever machines are operational. We continue with this mission. Our dealers too have been fully supportive in the field. All our service centres are now operational as well and undertaking repairs of components and engines. Wherever, access was limited due to lockdown, our team has been in touch with customers and guiding them through virtual platforms on restoring machines which are down. Our training centre has been instrumental in conducting several programs online for the customer staff on product appreciation and trouble shooting.   

Also brief us steps initiated to support your suppliers / vendors in the post Covid era?

At L&T, we have shared our realistic business perspective, post Covid, with the suppliers so that they are prepared to face the reality. In spite of very difficult liquidity situations, we have ensured supplier payments to a large extent. We are closely monitoring the situation and sharing the best of the available information promptly with the suppliers so that they prepare themselves in a calibrated manner. We are also helping them by sharing information on the best practices to fight the pandemic.

At Komatsu factory, all the finished goods were collected from vendors as committed and payment released immediately in lieu of standard payment terms. In addition, 50%-60% value of the finished goods manufactured by vendors based on the rolling forecast, is also released while vendor holds inventory till it is called. This helped them to overcome liquidity challenges and pay salary of employees and retain the skilled workforce.

How do you look at opportunity of manufacturing the components that you currently import?  What are the challenges here?

L&T manufactured wheel loaders and vibratory compactors are a true example of 'Make in India' effort. All of them are designed and manufactured in-house, with very little import content. We are proud that while designing our products, we have ensured that we use local components to a large extent. We continue to identify more opportunities to locally produce / source as a national priority.

Komatsu excavators have higher import content such as power train components, which are patented and need precision engineering. Komatsu already has a plan to localize imported components in phases. With a push for 'Atmanirbhar Bharat' and 'Make in India', Komatsu will focus aggressively on localization and advance the schedule.

To what extent the earthmoving equipment segment has contracted due to current crisis? 

The lockdown was declared on 23rd March, which immediately stopped all dispatches affecting demand in March by almost 70%. April and May were also washed out with very little dispatches from the factories. As lockdown was progressively opened from May, we saw inquiries building up due to the pent-up demand since March. Our dealers had sufficient stock of machines, which helped in meeting the requirement in June, even though production and dispatches from factory continued to be low. Actual end customer demand in June was almost about 50% of the normal demand for June. 

Is the demand set to witness further contraction in FY21?

Liquidity and availability of construction workers in the market continues to be an issue. More than 95% of construction equipment is financed by banks and NBFCs. The financers are maintaining cautious approach towards lending and have stricter credit approval norms. We expect this approach to continue throughout this FY, which will certainly be an impediment in quick revival of CE demand. Hence, we expect a gradual recovery in demand from September onwards. We also need to see the revival of projects in real estate followed by irrigation, roads and highways and stone quarries. We expect a contraction of about 25-30% in the demand for excavators and wheel loaders in FY2020-21.

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