Paving the way – Road Building Equipment Special
BY JAYASHREE MENDES
Analysts forecast that the equipment market in India for road and construction to grow at a compounded annual growth rate (CAGR) of 19% over the period 2012-2016. One of the key factors contributing to this market growth is the increasing investment in infrastructure development.
Earthmoving equipment and road construction equipment account for close to 70% of India’s construction equipment market. Backhoe loaders, which comprise tractors, front shovel/ bucket backhoes and small backhoes, account for 65% of the earthmoving equipment and road construction segment.
Amit Gossain, executive vice-president (marketing, business development & corporate affairs), JCB India Ltd, “This calendar year appears favourable for the road construction equipment market. However, much ground work needs to be done to ensure that implementation of projects is accelerated.
Currently, road projects are not at the speed they should be.” He attributes the delays to slack policies, financing, land acquisition, environment clearance issues, etc. But goes on to add that delinking of environment clearance from forest clearance could pave the way for execution of languishing projects.
Considering that more than 10,000kms of build-operate-transfer (BOT) projects are facing bottlenecks, manufacturers of road building equipment are awaiting clearance that will pave the way for growth in the road construction equipment market.
Hiten Kapadia, head, road construction equipment, Atlas Copco Construction Technique, says,” It is not that the US built great roads, it is the great roads that built the US. For India too, the focus should be on creating more roads with good quality — be it highways or expressways, or the state highways or our city roads."
Most Indian companies are positive that each segment in the road equipment sector has the potential to grow 20% per annum, which means we can expect the industry size to almost double by 2020. “We are also likely to witness technologically superior equipment on offer from different manufacturers, says Abhijit Gupta, managing director, Case New Holland Construction Equipment (I) Pvt. Ltd.
For instance, another company Wirt gen India has introduced new technologies like cold milling and cold recycling as milling is reasonably well accepted in the Indian market and is being used extensively for highway projects. Cold milling is the controlled removal of an asphalt or concrete surface at either a partial or full-depth application. When milling partial depth, the resulting textured pavement can be used immediately as a driving surface. However on the city milling front, the situation is still at a nascent stage and there is scope for development.
With regard to cold in-place recycling (CIR), Ramesh Palagiri, managing director and CEO, Wirtgen India, says the company has already executed a couple of projects and the end results were encouraging both for the client and the consultants. The company expects CIR to get more acceptance and usage in the coming years. CIR is a pavement rehabilitation technique that reduces the lifecycle cost of the pavement structure by reusing the existing asphalt pavement.
This process generally uses 100% reclaimed asphalt pavement (RAP) mixed with a new binder which may be either emulsion or foamed asphalt cement. The cold nature of the process reduces the impact on the environment and preserves energy due to the absence of heat application.
Gupta of Case New Holland Construction Equipment (I) Pvt. Ltd says that more manufacturers of road building equipment are now looking to build equipment that is reliable in terms of performance. “Our loader backhoes and compactors are domestically manufactured keeping in mind International quality standards. However, we import the skid steer loaders, wheel loaders and motor graders directly. We can safely say that Case New Holland Construction Equipment (I) Pvt. Ltd products are at par in terms of quality with those available in developed countries.”
Case New Holland Construction Equipment (I) Pvt. Ltd is regularly introducing new technology and advanced products that enhance the business value of its offering to customers.
The newly launched Ex Series backhoe loader with FPT engine is a fuel efficient product in the Indian market.
In view of better sales this year, another manufacturer, JCB, recently showcased its new plant in Jaipur. The company has planned an investment of `500 crore over the next five years. The company already has three operational manufacturing plants in India, and its Ballabgarh (Haryana) unit is the world’s largest backhoe manufacturing plant, according to the company.
While manufacturers prefer to sell road building equipment, there is a huge latent demand for rental as well. Gupta expects the market for rental equipment to pick up in a large way.
“The bottlenecks of inter-state movement and issues relating to local taxation deter large players from building up fleets. Barring a few large players, the business of renting equipment is currently handled by many medium sized firms. This is likely to change in future,” he adds.
“There is a demand to a certain extent for compactors but for other equipment like concrete slip form pavers, asphalt pavers or for recycling or milling machines it is still nascent. The rental market can leapfrog once GST is implemented as it will make it easier for contractors to move machines across states,” says Palagiri of Wirtgen.
But India is a price sensitive market where operator’s comfort figures last and that could lead to compromise on safety and quality. In order to curtail the price of the equipment, Indian manufacturers go easy on safety and quality parameters. However, vendors need to understand that an operator’s comfort plays an important role in extraction of maximum output from the equipment.
Most manufacturers agree that better quality equipment gives up to 10% extra output from the same equipment than those without such features. Thus, in long run, the cost of extra investment is
not only recovered but the profitability also goes up due to longer durability of better quality equipment.
In today’s economic scenario, equipment selling and financial assistance go hand in hand. For customers it does not just about own equipment, but it is also about owning them with the right finance options. Many active financiers in India are available to offer support to companies who would like to own world class equipment.
Although manufacturers are ready with facilities and capacities, most vendors stress that ultimately the need for proactive initiatives from the Government to put the Indian economy back on the growth path. This can mainly be achieved through creating infrastructure. Gossain of JCB says, “We need a strong mechanism to ensure that projects are approved faster not to forget a quicker financial closure. We need to strengthen our execution process. Creating a regulatory body for individual project categories can help streamline end-to-end coordination.”
There is also a need for uniform policies about compensation, relocation, and rehabilitation for projects that require significant amounts of land. In August 2013, the government showed its strong intent to streamline the process by passing the Land Acquisition, Rehabilitation and Resettlement Bill, although successful implementation on the ground is yet to be seen. The Draft Public Authority (settlement of disputes) Bill 2013 which seeks to set up an institutional mechanism that can provide speedy resolution of disputes related to public contracts or public private partnership (PPP) projects is another initiative that could speed up the economy.
The usual L1 tendering model is not conducive to the use of advanced road building equipment as contractors focus on constructing roads in the lowest possible cost. Contractors do not want to invest in latest technology as they do not see much business sense in buying high-end equipment to use in projects that are awarded to the lowest bidder, with no regard to quality of materials and construction. However, not choosing to invest in the latest and most efficient machines will only serve to be counterproductive for contractors. They must make themselves more competitive by adopting technology that lowers their cost and improves productivity.
Kapadia of Atlas Copco Construction Technique says that the company has a clear strategy. "To have complete and dedicated focus on construction and infrastructure, we created a new vertical worldwide two years back. We have been investing in the market each year, be in terms of reach, adding our own manpower, adding more dealers and of course expanding our service base to ensure customer satisfaction.
Today we have state of art manufacturing facility for our road construction equipment division in five countries viz. Germany, Sweden, Brazil, India & China."
In terms of road building equipment, there are few issues that continue to pose a problem. These are mainly confined to lack of skilled manpower, import of used equipment, etc.
Recently, management consultancy company Accenture in its report had estimated that over two million skilled personnel would be required for maintenance and operation of road building and construction equipment by 2020. This is not a small number and is critical for a holistic development of the equipment industry. To effectively combat the shortage of skilled manpower, the Indian Construction Equipment Manufacturers’ Association (ICEMA) has submitted a proposal to National Skill Development Corporation (NSDC) for setting up sector skill council for the equipment industry. NSDC is also tying up with companies and setting up skill centres to bridge the manpower gap.
Gossain says, “In terms of restricting import of used equipment, the Government should look at restricting multiple port entry to avoid dumping of low quality used equipment. We should have a single or dual port entry system as it will allow us to better examine the machines on various parameters like safety, emission, etc.”