03 June 2020

Table of Contents for Construction Equipment

Construction Equipment

Bright prospects

The CE industry is expected to see a significant leap in growth in 2015 due to the projects push by the government.

After three years of being in the veritable dumps the construction sector is looking for revival on the back of a new political dispensation which has development as its avowed agenda. With the Modi government’s emphasis on building smart cities and commitment to build better infrastructure, the CE sector has received a much needed booster shot in the arm.

There were indicators of the way things are looking to unfold at the bC India show in Greater Noida last month. It was not so much the numbers but the optimistic mood of the visitors and their quality which told the story of a possible continuation of the India Growth Story, stalled for some time because of the global economic downturn. Igor Palka, CEO, bC India, was led to say, “That the show was a great success is an indicator of the way things will go for India post 2015.”

Palka is not alone in predicting a positive outcome for the equipment business. CE equipment sector consultant cum forecaster Off Highway Research is also wont to predict that a bounce back is expected in 2015, with +25 per cent growth as the government of Narendra Modi, which won a landslide victory in last year’s general election, converts its economic plans to real construction activity on the ground.

The construction equipment industry will witness a major change owing to dramatic changes being introduced in the infrastructure, construction and mining scene across the country. The major demand drivers for construction equipment include heavy investments in various infrastructural projects by public and private enterprises in areas like road construction and maintenance, ports, power plants and mega irrigation projects. 

With the Make in India policy being rolled out by the Modi government several construction equipment firms are closely eyeing the opportunities. While digger manufacturer JCB, has activated its plant in Jaipur as part of its plan to raise its global profile on the back of a $500 million investment, firms like Kobelco and Leeboy too is evaluating the prospects of expansion at their plants.

Amit Gossain, Executive Vice President, Sales, Marketing, Business Development & Corporate Affairs, “The signals being received from the government in terms of its intent are extremely positive and that augurs well for the construction equipment business.” 

“We are looking to expand our capacities. The next budget will be critical,” says Amarnath Ramachandran, President Designate, Leeboy India Construction Equipment.

George Ellis, President-Construction, Terex Corporation, is more vocal in his enthusiasm, “I see huge opportunities for the CE sector to grow with the implementation of programmes like urban development, projects like smart cities, Clean India, high speed rail and other infrastructure works. I see the opening up of the market with more domestic and international and domestic players.” 

Manoj Chaudhari, Managing Director, Sarens Heavy Lift India Pvt Ltd, a worldwide leader in heavy lifting and engineered transport, says, “We see great potential for business because of the projects being kickstarted by the government in multiple areas like power, refineries, petrochemicals, fertilisers, metals and minerals. In 2015 we will be looking to increase our participation in each of those sectors. Though we have always looked to deploy our fleet on long term basis we will also engage in need based or project based expansion.”

The construction industry itself has been growing at the rate of 9-11 per cent year on year on the back of increased domestic and international manufacturing activities and industrial activities. What is also instructive is that there has been a significant escalation in the levels of investment both by the government and the private sector in infrastructure and real estate projects post the 2014 general elections. With the canvas of construction projects being huge and diverse there is a continuously growing need for various types of construction equipment and machinery. Industry watchers believe that the growth rates for the construction sectors could well exceed the overall GDP growth over the next 2 years, underlying a continued strong demand.  As per a report by Roland Berger Strategy Consultants, India's construction equipment market, though small compared to global standards, is extremely competitive – and has players who operate under different strategies – is likely to grow at 12 per cent increasing India's global share to 10 per cent by 2017.

"The market is expected to grow at 12 per cent CAGR to $ 4 billion by 2017, which will be driven by infrastructure investment during the 12th Five Year Plan," says Wilfried Aulbar, Managing Partner, Roland Berger Strategy Consultants.

 “However an important proviso to successfully achieve 10 per cent of global growth construction equipment players would have to take key strategic decisions. They will have to design and build equipment suitable to the Indian market. They should also look at a distinctive export business approach"

Aiding the growth of the country’s equipment industry will be burgeoning real estate industry, increasing coal production and mechanisation of mining operations. India is slated to see more competition among the existing players in those segments with an aggressive growth strategy. Meanwhile, the residential construction industry, the report says, will grow from a CAGR of 10.8 per cent during 2006-11 to 15.3 per cent by 2017.

This is expected to translate to increased investment in capital expenditures such as replacing old construction equipment leading to growth in construction machinery production to the extent of 3.3 per cent in 2015. It is reported orders for material handling equipment will catapult to 10 per cent in 2015.

As far as equipment types are concerned, demand for backhoe loaders – by far the most widely used machines in India – was expected to go up from 22,500 backhoe loaders in 2014 to 27,000 units in 2015, as per Off Highway Research. The London headquartered firm has assessed that there are now better long-term prospects for bigger, more productive machines, as opposed to the near-saturated backhoe loader market. Crawler excavator sales, it has pointed out, will grow from 9,100 machines this year to some 25,000 units by 2018. It is reported the prospects of demand picking up for core earthmoving machines like dozers, graders and wheeled loaders are also very good. Off Highway has forecast broad growth across all equipment types, with the earthmoving machinery sector looking particularly strong. In terms of numbers it expects overall equipment sales to rise from the current 46,755 machines to 89,030 in 2018. With the government emphasis on fast tracking road sector projects through removal of various traditional irritants like shortage of funds, land acquisition challenges,  environmental concerns and delay in government clearances and lack of structured regulatory and policy framework for PPP models - the road construction equipment market is expect to grow from its  current volume of 2500 machines per year.

Another area that will require to be addressed in the equipment industry will be the upgradation of existing technologies and introduction of new technologies. In keeping with the high volumes and the scope of the infrastructure to be built machines will have to be designed keeping in mind efficiency in terms of fuel consumption and productivity. On the equipment finance side there is a need for policy reform – systemic changes leading to credit enhancement, banking and regulatory interventions – to spur growth in demand for products.  Further since construction equipment capacity in the country exceeds current and near term domestic demand, there is a need to boost exports. That will involve aggressive push by the OEMs.

Right now with a major projects push in sight the outlook for the CE sector seems bright.

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