Set for the roads
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.
“Caterpillar machines and engines have been excellent growth promoters and have played a key role in infrastructure development, mining, power generation, energy production, commercial and residential construction, etc,” states Melicor. The company’s machines division plant located at Thiruvallur is a state-of-the-art 8 million sq ft factory employing over 998 trained employees. “To meet the increasing demand, the plant now builds more machines per year, including off-highway trucks, wheeled loaders and the 424B model of backhoe loader.
Our second manufacturing facility, the power systems division located at Hosur is also a world class manufacturing facility with advanced manufacturing facilities such as CNC machines and computerised testing. This facility currently produces engines and package generator sets rating from 218 to 2,626 horsepower,” Melicor informs.
“For high quality service within a factory-like environment, Caterpillar dealer (GMMCO) maintains global standards for contamination control. It has developed ‘5 Star Contamination Control’ rated world class repair facility at Nagpur. The dealer capabilities undertake complete machine and engine rebuild to meet global standards, rendering a full second-life to old equipment. Globally, Caterpillar has a world class parts distribution system servicing close to one million line items,” Melicor adds.
Looking at the huge demand for backhoe loaders, JCB India has invested Rs300 crore in the expansion of the world’s largest backhoe loader plant in India. “This plant has the capacity to produce 100 machines per day and it was recently inaugurated on April 3, 2009,” informs Gossain of JCB. JCB’s acquisition of Germany’s Vibromax Compaction Equipment few years back has enhanced its product offerings greatly. It is now manufacturing these machines at its world-class facility in Pune.
Som of Atlas Copco tells more about his company’s role in this segment. “Dynapac (acquired by Atlas Copco) has been present in the industry for many years but started having a direct presence with a new factory in Nasik, India. This has given Dynapac a level ground to compete with other manufacturers. In addition, Dynapac is also a full line supplier of soil compactor, tandem rollers, pavers as well as planers and hence can add more value to road contractors,” he says.
The key reason behind Atlas Copco’s acquisition of Dynapac was to increase its presence in the construction industry. “The Dynapac line of product in soil, asphalt as well as concrete is now adding to the Atlas Copco product basket with a wider range for its construction and mining customers in roads, Metro, buildings as well as infrastructure projects,” Som adds. The production for Dynapac rollers and pavers started from September 2008 and is likely to be increased in 2009.
Another company that made acquisitions in its quest to be a full line supplier is Telco Construction Equipment Co Ltd (Telcon), a JV between Tata motors (60% share) and the Japanese Hitachi Construction Machinery Co Ltd (40% share). Telcon acquired a controlling stake (79%) in Serviplem SA, Spain specialising in the manufacture of truck mounted concrete mixers and dry bulk tanks for the transport of concrete and cement respectively.
Serviplem has a presence in over 50 countries across the globe and is ranked amongst the top six global manufacturers. Telcon also acquired a controlling stake (60%) in Comoplesa Lebrero SA, Spain, Telcon’s technology partner since 2002. Comoplesa Lebrero manufactures a range of road construction machines. Of course, Telcon already has two manufacturing plants (at Jamshedpur in Jharkhand and at Dharwad in Karnataka). The company is also coming up with a third plant in Kharagpur that would be spread over 60 hectares with additional facilities for a vendor park.
This is very much in alignment with the company’s aim of being a full liner in the construction equipment business.
The third plant will also house a full-fledged R&D centre. Hitachi, while actively participating in creating the R&D facilities, will aim at making the new centre a global R&D hub.
Given the hectic activities at the road building equipment companies, one can infer that these companies see very good business ahead. For example, L&T Case too has invested to increase its manufacturing capacity. It commissioned its new, state-of-the-art backhoe loader plant in January 2009.
The company’s manufacturing facilities located at Pithampur near Indore is ISO 9001 certified and deploys latest technologies in its manufacturing processes. These include laser cutting machines, welding robots, CNC machining centres, moving assembly lines and so on. “We use powder coating technology for ensuring long lasting finish to the machines. Our engineers continuously keep improving the products and the processes,” says Javali.
Meanwhile, Liugong is looking at strengthening its position in the Indian market with a manufacturing base here. Its upcoming plant (also located at Pithampore, Indore) will start supplying in July 2009. “We are primarily looking at supplying loaders and excavators from this state-of-the-art facility,” says Li.
Let’s have a look at the major product offerings of these players. Caterpillar’s vast product portfolio includes more than 300 products. “Some of our key offerings are backhoe loaders, wheel loaders, hydraulic excavators, track-type tractors, motor graders, soil compactors, pavers and off-highway trucks. Our products are designed and manufactured for performance of the highest calibre. We also provide add-on equipment that increases the versatility of the machine, making it suitable for use in any operating environment,” says Melicor. Caterpillar will be investing to significantly increase the production for off highway trucks at its facility near Chennai. The company also plans to expand engine production at its facility in Hosur.
“We are also investing in increased production capability for backhoe loaders. We have already more than quadrupled its production in recent years. We are also studying increasing the range of products made in India, with the possibility of building additional manufacturing facilities for other earth-moving products,” Melicor adds.
A casual look at any of the several road projects happening in the country and you are likely to find a JCB machine.
“JCB machines like backhoe loaders, wheel loaders, excavators, soil compactors, asphalt compactors, skid steer loaders, etc. are being used extensively today. We have almost the entire range of equipment required by the road building industry for various activities like construction, compaction, excavation and loading,” says Gossain. JCB has sold more than 80,000 machines in India.
Atlas Copco offers its soil compactor model as well as the tandem roller model. “Dynapac is also offering PTR, pavers and planers to offer a complete solution to our customers from plants in Germany and Brazil. We also have a very good range of light compaction equipment as well as concrete equipment,” says Som.
L&T-Case also underlines its strong presence in the road building equipment segment through a wide range of products like vibratory compactors, loader backhoes and skid steer loaders. “Our parent company, L&T offers excavators, motor graders, dumpers and bulldozers,” informs Javali. L&T-Case has already supplied over 10,000 loader backhoes and over 4000 vibratory compactors.
Liugong too has a wide range of loaders, excavators, rollers, graders, bulldozers, pavers and planers to offer.
However, being a Chinese company, the challenge for Liugong has been double edged. Not only does it have to compete on the cost front but it also has had to face another problem related to perception.
“Although, we have world-class products to offer, we are many times challenged by the perception that Chinese products are cheap as well as of low quality. We have to put in a lot of efforts to clear these doubts. Of course, now the situation is slowly changing due to the confidence shown by customers who are satisfied by our products,” says Li. He is now expecting a 20-30% growth rate in the coming year.
When it comes to gaining customer confidence, another vital aspect for this industry is the after sales segment and all the key players realise this. For instance, with an extensive dealer network across more than 70 locations including branches, site offices and workshops, Caterpillar emphasises the significance of keeping its equipment running. The company also informs that it has 1,000 highly skilled dealer service engineers reachable through a dedicated 24/7 customer support.
Atlas Copco aftermarket support too is focused on product support through a strong team of Dynapac engineers who are posted at various locations in its 8 regional offices. “In addition we have added 19 dealers at various locations to offer parts at door step with these engineers. Dynapac has also central training and refurbishment facility. We believe that offering product support is only half the story and hence have also created competence to give application support to our customer’s project site,” informs Som.
“L&T-Case is currently reaching out to its customers through 49 dealers spread across the country with branches for proximity to machines so that up-time is maximised. Our dealers stock the spare parts and have trained service engineers. The dealers are connected through real time SAP system to the central ware house and factory for any emergency requirements. We also have a Helpline where customers can log-in their service requirements,” says Javali of L&T Case.
Training too is a critical aspect of this business. For example, JCB’s state-of-the-art training centre in Pune can train 160 engineers per day. While L&T-Case has its central training centre at Pithampur.
Telcon’s training centre located at Jamshedpur focuses on the key aspects of general maintenance and trouble-shooting. Its spares support comes from the central warehouse at Nagpur in addition to the spares stocking with its dealers. Also, Telcon’s dealers have proactively come out with specific operator training programmes and some of them have partnered in setting up of such facilities. Currently, JCB has 47 dealers and more than 300 sales and service outlets in India.
“All these outlets provide world class service to our customers and are on par with any of our outlet in UK in terms of technological assistance or quality of service,” says Gossain. “Nobody is close to us even in terms of outlets,” he adds. Although Liugong is a relatively new player, it already has nine dealers most of whom also double up as service centres.
True, the road building industry isn’t in the pink of its health today but it has very good prospects. The road building equipment industry understands this. Thus, despite the ongoing slowdown, most key players have their eyes on the future. While many are ready to expand as and when required, they are equally focussed about other essential elements of the business like R&D, training, dealership networks, after sales and so on.