The road building equipment industry is poised for huge growth. Niranjan Mudholkar finds out how some of the key players are gearing up for the big leap
W hen Dr Kirit Parikh, member, Planning Commission points out that 40% out of 60 road projects put up for competitive bidding have received no bids, it indicates that all’s not well for the road building sector. Obviously, the implications are equally bad for the road building equipment industry.
But as a very senior official from the road building industry told Construction Week, the need to improve infrastructure, especially roads, will remain a priority and will drive improvement in the quality of new highways and introduction of latest toll collection concepts, signages etc - regardless of the current scenario. Hence, the road construction equipment industry will eventually need to grow at a strong pace.
Thankfully, various governments in the recent past have been emphasising on the development of the road network in the country. As Ed Melicor, director - Caterpillar Commercial Pvt Ltd, India says: “Construction of roads, highways, bridges and subways have undergone a sea change in the last decade.
Ambitious projects like the Golden Quadrilateral, the National Highways Development Programme (NHDP) being implemented in seven stages by the National Highways Authority of India (NHAI), additional 1000 km of expressways, 6,500 km of the main four-lane highways and high-density stretches having six-lanes, 10,000 km of four-laned high-density national highways, and 20,000 km of other roads to be upgraded to two-lanes, indicate a considerable size impacting the road construction equipment industry like never before.”
Agrees Amit Gossain, associate VP, marketing & business development, JCB India. He says: “There is huge scope for our industry due to the increased focus on road building activities in the country. As per the 11th plan about Rs475 crore are been spent on infrastructure development and a major part of this will be utilised for roads.”
Abhijit Som, business manager-road construction equipment, Atlas Copco Construction & Mining Sales (A division of Atlas Copco (India) Ltd) admits that although the industry has slowed down considerably in 2008, it is likely to see improvement by the end of 2009. However, he believes that it is the existing players who would see this growth.
“There are 6-7 players in this industry and with available capacities it will be difficult for new players to enter,” he says. In the past the demand exceeded the supply as there were very few players in the equipment industry. So it was easy for the players then to dominate the market. However, with the foray of overseas brands along with the increase in production of indigenous brands, supply is being adequately met.
Li Dongchun, president, Liugong India Pvt Ltd agrees. “Earlier, road equipment buyers didn’t have much choice due to the huge gap between demand and supply. However, now the situation is fast changing,” Li says. Incidentally, Liugong is one of the key players that have entered the Indian market in the recent past. Despite the slowdown in the market, Li is confident that the Indian road building industry will see a strong growth in the near future. He foresees that road projects will move faster in the next government’s tenure. Li also feels that adopting the BOT model for road building projects will solve the fund shortage.
Arun Javali, head-sales development, L&T-Case Equipment P Ltd too points out that most roads in India need upgradation to the international standards to meet the growing economic growth. According to Dr Parikh, over 325,000 km of Indian roads in bad shape are crying out for upgradation. These, he said, could be taken up on priority without worrying about the problems of land acquisition and the need for DPRs.
Javali says: “This provides an excellent opportunity for development of roads as an important part of infrastructure. The focus and thrust in this direction is visible in actions of successive governments. This thrust gives abundant potential for the growth of the Indian road construction equipment industry.” Javali quotes a recent study which estimates that the investment for the roads sector in India over the next 8 to 10 years will be to the tune of US$100 billion. “In view of this, the Indian road construction equipment industry is expected to grow at rate of 15% to 20% over the similar term,” he adds.
The looming elections may have put some question marks on road projects but people in the know aren’t too worried.
JCB’s Gossain says: “No matter which government comes to power at the centre, it cannot ignore connecting India through world-class roads. Also, the ratio of the number of equipment used in our country per lakh of population is quite low compared to many developed countries. This translates into huge opportunities for our industry.”
Moreover, even if new projects may have been stuck now, there are sufficient ongoing projects as Melicor of Caterpillar India points out. “The current road construction projects being simultaneously executed amount to billions of rupees. This excludes the cost of highway maintenance, which would be an ongoing project.
All of this has created a huge demand for construction equipment for working relentlessly to ensure high quality roads and timely completion of projects,” he says. It would really be interesting to see how some of the key players are gearing up.
For example, a major like Caterpillar has intensified its focus on the Indian market in the recent past. Although the first Caterpillar machine sold in India dates back to 1930, it was in 1995 that the first Caterpillar branded engine was manufactured in Hosur. Based on the growing response from its customers in India, the company announced a four-year, US$200 million investment to increase manufacturing capacity in India.
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