Equipped for transformation
The Indian construction sector, once supplied totally by imports, is turning to local manufacturers as they offer quality products at competitive prices. Niranjan Mudholkar looks at the latest technological developments
Economic liberalisation forced the Indian construction industry to adopt a pace it had never before seen.
Terms like targets and deadlines became a norm at construction sites and what followed was rapid mechanisation.
The construction industry took to equipment and machinery like a vehicle takes to fuel. “The future prospects of the equipment industry are directly linked to the growth of the Indian economy,” says VG Sakthikumar, COO, Schwing Stetter India Pvt Ltd, market leader in concreting equipment.
Compared to its global counterpart, the Indian market has a long way to go and this in itself represents great growth potential. “The Indian construction equipment sector is currently estimated at US$2.25 billion, a fraction of the global market which is over $75 billion,” says Sakthikumar. But the Indian industry has been growing at a healthy rate of 30% on an average, year on year, he adds.
More the investments in the infrastructure sector, higher is the growth for equipment. “Key infra sectors like electricity, roads, telecom, railway, irrigation, water supply, seaports and gas pipelines can expect investments of almost Rs4 lakh crore in 2009-10 and almost Rs6 lakh crore in 2011-12,” says KK Taparia, executive director, Universal Construction Machinery & Equipment Ltd (UCM), a major manufacturer of concreting and material handling equipment. In other words, it is such investments that will fuel the industry.
Currently, however, this industry too is fighting the financial blues. “The rough phase has taken a toll on the ready-mix concrete (RMC) equipment business segment, as there has been a significant fall in demand. We expect the RMC equipment industry to lag by 15-20% this year,” says Sakthikumar.
Compared with this, the companies catering to the infra business are better placed. “We haven’t seen much reduction in business. As long as there is a healthy order book, which is the number of orders bagged versus those under execution, we are on safe turf. A redeeming factor for us has been our little exposure to the realty sector, which is affected the most,” says Rajiv Sethi, MD, Gemini Equipment and Rentals Pvt Ltd (Gear), an emerging player in the construction equipment rentals sector.
A hopeful industry
Nevertheless, there is a feeling that the crisis is not here to stay. Taparia appears positive when he says: “Combined efforts made across economies will lead to a strong world economy soon.” Rajesh Kawoor, GM (product development), Sany Heavy Industry India Pvt Ltd, a leading supplier of a range of products such as concreting machinery, cranes and drilling equipment, sees the picture changing in the near future. “We are hopeful that the next couple of months will see the construction industry bounce back and continue growing as in the last few years.”
Kawoor adds that the growth will continue for the next five to eight years.
Suvendu Moitra, head, marketing at Hyundai Construction Equipment in India is confident about a turnaround of the current situation, especially when seen in the light that the company is focussing on being market leader in the hydraulic excavator segment.
Hyundai Construction Equipment, a major manufacturer of excavators and loaders, has invested Rs300 crore in setting up a plant in Chakan near Pune and begun production and distribution of 20T machines.
Moitra says his company has achieved top position in the Chinese market with 20% share and is looking to emulate the same in India. “We have an all India projection of 40,000 excavators by 2012 and are looking for fast growth. At this stage we can only say we are on target,” he adds.
Notwithstanding the economic slowdown and going by the current demand, Hyundai’s vision of 40,000 excavators hardly seems unrealistic as growth for most companies in this gloom period has come from the domestic market.
As Sethi of Gear says, the Indian market itself is so huge that the export market is not even considered by most players.
Schwing Stetter India, for example, derives 95% of its revenues locally.
“Demand is so high here that sometimes it is difficult to fulfil local requirements. But we have exported to New Zealand, Bangladesh, Sri Lanka, Senegal, Maldives and to our parent company in Germany and the USA,” says Sakthikumar. There certainly is scope for the exports market due to the now well known aspects of Indian manufacturing.
“The potential for export is tremendous as India is being recognised as a quality manufacturer not to mention the low cost,” says Sakthikumar.
But there are a different set of challenges here. Taparia of UCM points out the inadequate equipment financing options for customers as a major challenge. He says that sourcing raw materials is a problem with prices increasing as well as that of logistics further compounded by suppliers who often dictate unrealistic terms. Moitra agrees. He adds: “Global players with a global presence could be at an advantage if the cost dynamics were to shift in favour of some other country.”
“The marketing communication cost is growing too,” Taparia adds. Lack of sufficient skilled labour is another issue faced across the industry. Taparia says IT companies often poach skilled manpower. One way of improving this is to improve pay-scales vis-à-vis other tech sectors.
“On the operational level the dearth of trained operators can be filled with creating operator banks,” he adds. To improve labour quality, Sethi of Gear is planning an in-house school for training, development and social upbringing of not just operators but also helpers and mechanics. “OEMs could start training institutes and join hands with industry related associations to conduct seminars and workshops regularly,” he adds.
Kawoor feels that availability of skilled manpower in India has not grown proportionately with the growth in the construction industry. He suggests that manufacturers should take the lead in training people by arranging camps and training centres associated with the construction industry or through the manufacturers’ in-plant training facilities.
With regards to augmenting the trained workforce, Moitra has tremendous confidence in the Indian talent pool that he feels needs to be harnessed properly. “The talent pool of India is manifested by the high growth rate of the Indian IT industry. We would like to leverage this skill with Korean unwavering drive to make our project a success,” he says. Hyundai incidentally has a good training centre in Pune where customer operators are trained.
While most of the problems are common across the industry, Sany faces a unique problem, that of pricing. The company imports its entire range from China.
“The challenge is supplying equipment that complies with international standards at lower prices than those offered by some manufacturers,” says Kawoor. He feels that indigenisation and localisation of products will help.
“In this regard, we have already bought land near Pune to set up our own manufacturing base in India with an investment of US$60 million. We are likely to commence production in early 2009,” he adds.
Speaking for the entire industry, Moitra of Hyundai has a few solutions. He recommends the three transformation initiatives: India-specific product offerings, improving cost-competitiveness to face impending competition from low-cost countries import and push for exports in areas where India has an advantage (i.e. components such as transmission systems and small engines, engineering and design services).
The advanced and innovative technologies will play a lead role in the entire development. There would be huge scope for mechanisation. There would be various options available to clients through renting/ hiring/leasing in future.
“Industry players need to launch four growth enabling initiatives: 1) enhance the quality, delivery and pricing of after sales services 2) address key gaps in financing 3) expand dealer and channel network coverage and quality, and 4) proactively help build supplier capacities and capabilities,” he says.
While it takes corrective action, the construction equipment sector also expects strong support from the government.
Moitra says the government needs to lower the tax burden and abolish current tax anomalies that encourage imports.
“Encourage domestic value addition through mandatory 30% level of indigenisation and set up an industry focused R&D institute to strengthen industry capabilities through policy measures,” he says. Sakthikumar agrees and adds: “The government should insist on the use of RMC, which will scale up the industry as a whole and also help source quality concrete. Uniform taxation throughout India is another aspect; introduction of VAT and further refinement of VAT may bring this change.” He emphasises increased awareness of the advantages of RMC.
As growth in infrastructure development will translate in growth for the equipment industry, Sakthikumar has suggestions to boost the sector through public-private partnership. “This would significantly aid the process of rapid infrastructure growth. The approach is best suited for the infrastructure sector, as it supplements scarce public resources, creates a more competitive environment and helps to improve efficiencies and reduce costs,” he says.
Sakthikumar’s farsightedness and astute market understanding is representative of the key players who have literally changed the country’s landscape. For an industry that started its first private production less than 40 years back, it has been a great journey. The last five to ten years have been particularly dramatic. Experts feel this industry has the potential to cross the US$10 billion mark within the next 6-7 years.
Despite the financial crisis, the equipment industry will grow given its close links with the infrastructure and construction industry. Taparia says: “The future for our industry is very bright as the fundamentals of Indian economy are very strong. After all, there is huge scope for real estate, industrial and infrastructure development.”
And then, industry leaders understand their responsibility. “As market leaders, it is our responsibility to work towards the growth of the sector as a whole,” affirms Sakthikumar.