What Lies Beneath
Ashim Sharma outlines the trends that lie in store for the real estate and construction equipment industry.
Infrastructure spending increased 1.6 times from Rs 23.77 lakh crore in 11th Five Year Plan to 37.24 lakh crore in 12th Five Year Plan. Union budget 2017-18 allocated Rs 3.96 lakh crore to the sector, including Rs 1.31 lakh crore for Railways and Rs 64,000 crore for highways. With the Government target of investing about Rs 25 lakh crore in infrastructure by 2019, the construction equipment market is expected to witness a high growth in this period. Apart from Rs 8 lakh crore on developing 27 industrial clusters, another about Rs 5 lakh crore would be spent on road, railway and ports connectivity projects.
Public infrastructure projects are the major revenue generators for CE sector in India, accounting for more than 50% of the demand. Roads and highway projects lead the way, with CE accounting for a major part of the project cost. With growth expected in the public infrastructure projects as well as other major customer segments i.e. ports, airports, housing, mining, etc. the CE industry is expected to see a surge in volumes. With the increase in demand, several mega trends are influencing the CE market in India.
Demand shift from multi-function to specialised
In the last decade, multi-function equipment such as backhoe loaders dominated the Indian market, offering sufficient engine capacity and cost advantage by providing functions usually associated with two or more machines. However, contract sizes have risen, necessitating need of dedicated equipment to meet timelines.
Construction sector is the second largest employer in India. It is also the second-most hazardous sector after mining. Safety has become a key part of discourse while designing vehicles.
Currently, government is in consultation with stakeholders to frame a legislation for CE. One of the stated aims as per the draft legislation is to ‘Improve the operational safety & emissions aspects of such machinery to promote safety & health & protection of the environment by reducing air pollution’.
Globally, the advent of IoT and Big Data is having a profound impact on industries. In India, telematics allows users to get alerts regarding service, operations and security. Equipment repairs represent the third largest cost and can be brought down by use of real-time monitoring and remote diagnostics. Data analytics solutions in the market monitor vehicle and operator and deliver insights for productivity improvements to smartphones/tablets. The future is a complete connected site where all machines are wirelessly connected to each other as well as with a monitoring center and share location and performance data in real time to enable minimum idle time and maximum asset utilization.
It is estimated that India would need 1 million trained operators and 3 million mechanics by 2020. Although Infrastructure Equipment Skill Council has targeted to train 2 million personnel by 2020, it will not be enough. Government has allowed tax credits on imported CE, leading to reduction in the landed cost and making imported construction equipment from China cheaper.
Construction firms are now looking at ways to reduce capital expenditures to allocate funds for other business needs and leasing has gained prominence. Although rental market size is India is still small compared to other countries, it is poised to grow at a fast rate due to infrastructure development in smaller cities where a lot of contracts are expected to contractors, who prefer renting to owning. Many of the trends outlined above can be looked at as an opportunity to gather higher share of the market by being the first one to take suitable actions to navigate this challenging environment.