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Gearing up for the future

PMV

How is the construction equipment sector readying for the year ahead and beyond? What trends will determine its strategies? Niranjan Mudholkar finds out

The market size of the Indian construction equipment sector estimated to be just under US$2.5 billion need not act as a dampener when compared to the global figure of around US$75 billion.

The country’s infrastructure development is poised to attract investments worth US$500 billion in the next five years or so. And the majority of this investment will be in areas that have huge demand for construction equipment (e.g., roads, ports, water and mining).

The construction equipment sector can expect to grow manifold in coming times.

This growth is, of course, regardless of the financial slowdown because any government at the centre cannot afford to neglect the infrastructural progress due its direct linkages with the country’s economy. An instance here is the ongoing seaport construction at Karaikal in Puducherry which is on track for its phase 1 completion (April 2009).

The project site is abuzz with activity and dominated with construction equipment like excavators, loaders, trucks, cranes, and batching plants.

At the same time, one can ignore the downturn; economic considerations will continue to influence the market. Hence customers – whether private, public or both together – will continue to demand products that are primarily price and value oriented. There is also a tendency in the industry to subcontract earthworks as infrastructure projects are spread over large geographical locations.

It has been seen that the subcontractors look for price and value in their selection of construction equipment. There are efforts to educate these customers in terms of the benefits of feature oriented equipment but it will take time. Moreover, availability of skilled operators for very advanced equipment is also an issue in India. Obviously, feature oriented construction equipment products will not see a great market in India at least in the near future.

With the market opening up opportunities, there will be enough for everybody. While global original equipment manufacturers (OEMs) strengthen their positions in the Indian market, Indian equipment manufacturers – despite their small presence – can make a meaningful impact. However, as Tushar Mehendale, MD, ElectroMech says: “Indian equipment manufacturers will have to focus on innovation and provide solutions that address specific needs of customers.” It is through this approach that ElectroMech, which caters not only to the leading infra companies but also to the OEMs, leads the Indian crane market in terms of volumes.

Meanwhile, the global OEMs are consolidating their leadership through introduction of products as well as applications. Schwing Stetter, which offers a range of batching plants, transit mixers, concrete pumps and other equipment, has recently launched SP 1400, its latest concrete pump. This is the fourth category of pumps to join its range of concrete pumps in India. “SP 1400 fills the gap between our BP 350 range and BP 1800 range of concrete pumps. The product has been launched for the first time globally and will be manufactured in India first. Later, the group will manufacture this model in USA and China,” says VG Sakthikumar, COO, Schwing Stetter India Pvt Ltd.

Similarly, Hyundai, which offers hydraulic excavators and wheel loaders starting from 8T to 80T with attachments, is manufacturing two varieties of 20T machines in India. The demand for its hydraulic excavators is so huge that Hyundai today aspires to achieve market leadership in this segment. “Our company is moving towards realisation of this vision in India,” says Suvendu Moitra, head-marketing, Hyundai Construction Equipment India Pvt Ltd.

Although, import of products from low cost countries (LCC) like China has been considered as a threat for some time, it may not be a huge challenge in the future. “Despite being price and value oriented, customers in India are now quality conscious and will not accept low quality products even at low prices,” says Mehendale.

He adds that many products imported from China fall short on the quality front and hence may not present a threat to manufacturers offering quality products. It is natural that imported products can no longer sell only on the basis of price.

Moreover, it may not be a cost effective option for players who import quality products from China.

For example, a key player like Sany that imports its complete range from China is now setting up a manufacturing facility in India. Rajesh Kawoor, GM (product development), Sany Heavy Industry India Pvt Ltd says the Indian customer has become mature due to exposure to globalisation. “Indian customers are aware of the latest technology available in the international market,” he says. “For us, the challenge is to supply equipment complying with international standards at a competitive price,” Kawoor adds.

The coming years may also open up export opportunities for the major Indian construction equipment players. As Sakthikumar says, the potential for export is tremendous as India is getting the recognition as low cost yet quality manufacturer. Although, currently the domestic demand continues to drive the market, the future will certainly present scope for increased exports.

The coming times may also see improvement with regards to equipment financing as currently this continues to be a key issue. “Unavailability in equipment financing is a major challenge we face as large equipment is capital intensive,” says KK Taparia, executive director, Universal Construction Machinery & Equipment Ltd. Taparia is hopeful that the situation may improve as tying up with financing companies and creating options through renting and leasing equipments has made a considerable difference.

The future certainly looks bright with trends driving the industry. There are challenges ahead but they are definitely outweighed by opportunities of growth. 

Huge growth potential

“Domestic market spending on earthmoving and construction equipment is likely to be a cumulative US$40 billion between 2007 and 2015. This implies annual growth of about 17% a year for the next eight years and would create an annual domestic market of US$8 billion in 2015” – A study done by McKinsey & Company for Confederation of Indian Industry and the Indian Earthmoving and Construction Equipment Industry Association Ltd

Reflecting trends

1. Hyundai Construction Equipment India has invested approximately Rs300 crore to set up a plant in Chakan near Pune, Maharashtra. Production and distribution of 20T machines have started. With pan India projections of 40,000 excavators by 2012, Hyundai aspires to be the market leader in the hydraulic excavator segment.

2. Sany Heavy Industry India Pvt Ltd is developing its manufacturing base in Pune with an investment of around Rs280 crore. Production is likely to commence in early 2009.

3. Deere & Company and Ashok Leyland Ltd (Hinduja Group) have formed a joint venture to initially manufacture and market backhoes and four-wheel-drive loaders that will be sold in India and exported.

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