Construction Equipment Industry in India Gears Up for Growth

Construction Equipment

Viewpoints as reflected in the discusion of NBM&CW witth captains of construction cquipment companies portrayed a positive optimism about the future growth of the industry. Although issues confronting the industry remain to be tackled at the policy formulation end, the industry on its part is focused of fine-tunning its operation in introducing new equipment as per new projects need and imparting training to their personnel to operate, manage and maintain new generation equipment and machinery.

Mr. Vijay Sharma, Executive Director Terex Vectra

The government is strongly committed to infrastructure development—what are your projections for the CE market in short and medium terms and what propels the market in India – price, quality or brand?

Mr. Vijay Sharma
We are quite confident that the Indian CE market will grow by at least 10-15% on annual basis for next 5-7 years. This is on the basis of renewed economic activity around the country and the focus on nearly all kinds of Infrastructure. As far as the driver of demand for equipment is concerned, we believe that it is the value for money concept that a typical wise Indian customer is concerned with. He definitely prefers paying more once he is confident on quality and reliability of equipment he has chosen but at the same time, only those features are interesting to him that he finds added value. Among other factors, brand, operator comfort, safety and visibility also plays an important role in influencing the purchase decision.

Several manufacturers are willing to launch advanced and heavy product line in India but in general Indian contractors and builders are not opting for it despite having several big projects in hand and facing difficulties in completing projects on time. What are the reasons holding them back for upgrading their equipment fleet-higher cost, lack of awareness, uncertainties of future projects?

Construction Equipment
Indian contractors and hirer businessmen are always looking for value for money whenever they go for equipment purchase. For them, every penny spent on the purchase, its maintenance and service counts. When lack of awareness impacts the purchase decision, brand confidence plays a major role. In India, large scale infrastructure projects are getting more time bound and delays are increasingly understood a reason for increasing cost. This focus is yet to percolate to some of the local smaller projects hence, some of the contractors have a tendency to try to complete tasks with smaller multi-purpose machinery even if they cause some delay. This will surely change in coming times.

Shortfall of skilled and trained equipment operators and mechanics is a big issue for several years now. What enabling efforts are required at Government and manufacturers level to overcome this problem?

Government can play some major role in this matter but it is with the CE manufacturers that face this problem and we need to work at a solution too. At Terex, we started a concept of Operator Training School at our premises in Greater Noida in ‘2005 and till now we’ve trained over 2,000 operators in handling different CE machinery. We are also planning to establish Operator Training Schools at our dealership level at some key locations and service – mechanic training facility at the factory.

In developed countries, the share of equipment sold to rental companies is over 50%, whereas in India it is below 10%—what are the key issues for rental business not taking off in India and where do you see rental business in the next couple of years? What enabling business environment needs to be created for its future growth?

Rental Business in India is firmly on growth path, even though it is at very modest level now. But if we talk about Backhoes Loader, which have a dominant share in CE industry of India, there are a very large number of small contractors who are ready to rent out their machines at very low rates. This is one of the reasons why big rental companies may find it difficult to compete in this product segment. However, in heavy machinery like cranes, excavators, compactors etc., the rental business concept is already there and will surely pick up sharply in next 3-5 years.

Used equipment trends is also picking-up in India, and few auction companies are making in-roads here—is this a threat or an opportunity to the manufacturers?

Used equipment industry is also picking up. We definitely find this as an opportunity as more buyers will turn up for purchase of old machinery, and hence the customers who are selling their old machinery at good prices will be willing to go for new one.

What are the critical policies issues plaguing the CE industry in India that need to be addressed on a priority basis? Also how do you propose to tackle them at the macro as well as micro level for the balanced growth of construction equipment industry?

  • Chinese government saw that construction equipment sector plays a huge role in nation building – by speeding up the growth of infrastructure. To promote mechanization of infrastructure sector Chinese government gave sizable subsidies and encouragement to the construction equipment sector which hugely helped the CE industry in China grow to a level which is largest in the world today and helped the country build up infrastructure fast.

    Today, Chinese machinery is available at cheap prices as compared to Indian machinery. Also, there is an urgent need of a strong push from Indian government to boost the Infrastructure growth by providing support to CE industry which is yet not yet visible.
  • CE machinery is mobile and is transported to different locations countrywide depending on the requirement. However, due to different taxation structures in different states like different rates of VAT, entry taxes, octrois, local levies etc., the prevailing entry permits and RTO rules, the manufacturers and the customers face lot of obstacles in running a smooth business while moving across the country.
  • Another intriguing factor is related to imported machinery. In India, the imported machinery can easily be RTO registered anywhere without the need of adequate testing at State Transport Authorities in different states, while, the machinery manufactured in India has to be tested as well as registered – this naturally does not provide level playing field for Indian manufacturers.

Mr. Anand Patel, Executive Director, Gujarat Apollo

The government is strongly committed to infrastructure development—what are your projections for the CE market in short and medium terms and what propels the market in India – price, quality or brand?

Mr. Anand Patel
We expect the construction equipment market to have a CAGR of at least 10-12% in short-term (3 years) and 8-10% in medium term (5-6 years). Our estimate is after factoring possible redeploy- ment of existing CE.

The Indian market so far as the equipment range of Apollo is concerned, can be broadly divided into two segments.

Asphalt batch plants and sensor pavers: This market is essentially quality and brand driven.

Drum type asphalt plants and mechanical paver finishers: This market is essentially price driven.

Several manufacturers are willing to launch advanced and heavy product line in India but in general Indian contractors and builders are not opting for it despite having several big projects in hand and facing difficulties in completing projects on time. What are the reasons holding them back for upgrading their equipment fleet-higher cost, lack of awareness, uncertainties of future projects?

Such equipment is for use in large size projects of NHAI and State Governments. The Indian contractor catering to this segment is definitely quality conscious and opts for the right kind of equipment as specified. It is incorrect to say that the Indian contractor is not opting for advanced technology. Price per se is not an issue if the value for money factor is established.

Shortfall of skilled and trained equipment operators and mechanics is a big issue for several years now. What enabling efforts required at government and manufacturers level to overcome this problem?

The Government can increase the number of technical institutes. At the manufacturer level, almost all the manufacturers offer training program for technicians which enables them to operate and maintain the CE. We, at Apollo also offer such training on our asphalt batch plants and sensor pavers.

In developed countries, the share of equipment sold to rental companies is over 50%, whereas in India it is below 10%, what are the key issues for rental business not taking off in India and where do you see rental business in the next couple of years? What enabling business environment needs to be created for its future growth?

This is a difficult question to answer, we believe that one of the main reasons is that in a growing market like India, a contractor forsees immense future potential. So in his calculations, it makes economic sense to own rather than rent the equipment. But, rental business will definitely be moving northwards in future as the volumes of maintenance jobs increase.

Used equipment trends is also picking-up in India, and few auction companies are making in-roads here—is this a threat or an opportunity to the manufacturers?

It is a threat as well as an opportunity. The manufacturers now will have to consider seriously a separate SBU for purchase / sale of used equipment somewhat on the lines of automobile manufacturing.

What are the critical policies issues plaguing the CE industry in India that need to be addressed on a priority basis? Also how do you propose to tackle them at the macro as well as micro level for the balanced growth of construction equipment industry?

Construction Equipment
It is the lack of level playing field. In 1997, the Government allowed zero duty imports of a few types of equipment which were not manufactured in India at that point in time. Today, many of the equipment in that list are made in India. Unfortunately, the Indian equipment is not eligible for zero exicse duty or tax while the zero duty import is still on. This definitely puts the Indian manufacturer at a disadvantageous situation on the cost to customer front. All the representations to the Union Government of India have been of no use. This needs to be addressed on a priority basis.

We adopt an ongoing value engineering exercise to keep cost of the new equipment competitive. With lower prices of spare parts and a pan India presence, the product life cycle cost of Apollo equipment thus becomes lower to the customer. All said and done, this zero duty import does put pressure on the bottom-line of the Indian manufacturer.

Mr. Amit Gossain, Vice President, Marketing and Business Development, JCB India

Government is strongly committed on infrastructure development, what are your projections for the CE market in short and medium terms and what propels the market in India – price, quality or brand?

Mr. Amit Gossain
Indian customers are well educated in their product knowledge and know what they are paying for. Higher value for better quality products is acceptable to most. The customer understands that while procuring equipment he is also subscribing to the after sales support that the manufacturer provides and that’s where brand comes into the picture. I would not call the market an extremely cost sensitive one, but rather an educated one that values reliability, productivity and quality of the machines.

The earthmoving and construction equipment industry has bounced back quite convincingly from the slowdown during the global downturn. The emphatic performance of the industry in the first half of calendar 2010 leads us to believe that infrastructure growth of the country remains a top priority for the Government. With tighter deadlines and quality parameters the importance of specialized and reliable equipment is constantly on the rise and this augurs well for us with our widest range of earthmoving and construction machines. JCB is a one stop solution for every construction equipment need.

All three price, quality and brand are important. Brand constitutes quality and support aspect.

Shortfall of skilled and trained equipment operators and mechanics is a big issue for several years now. What enabling efforts required at government and manufacturers level to overcome this problem?

Skill of the operator is linked to quality of work and safety at site. For every operating construction machine the customer needs at least two skilled operators. We impart operator training and from a pilot training centre at Ballabgarh in 2006, along with our dealers run 12 operator training centers across the country. With support of the local Government bodies we have also tied up with over 6 ITIs in Punjab for imparting operator training. In Chhindwara we run an operator training centre jointly with the CII at its skill development centre.

Construction Equipment
There is a shortage of operators in India and these initiatives will also help in employment generation in the country. Government is taking serious note as has to do with skill enhancement, employability as well as quality of infrastructure. We have trained over 15000 young men as operators till date and this number will increase exponentially as we execute our plans to train more operators over the next few years.

Used equipment trends is also picking-up in India, and few auction companies are making in-roads here, is this a threat or an opportunity to the manufacturers?

Used equipment market in India is not yet very well developed. While Indian made machines keep changing hands every 3-4 years on an average, the presence of second hand imports cannot be underestimated. The increasing presence of used equipment in the Indian market will have to be regulated carefully by the Government. These equipment cost less and lure the less educated buyers with perhaps false promises. Dumping of used equipment may hinder project implementation if the kind of equipment coming in is not filtered. There should be norms regarding the quality and age of such machines.

Mr. Prabhat Tiwari, Head Marketing and Key Accounts, Hyundai Construction Equipment India Pvt. Ltd.

The Government is strongly committed to infrastructure development—what are your projections for the CE market in short and medium terms and what propels the market in India – price, quality or brand?

Mr. Prabhat Tiwari
According to industry experts, in the current five year plan till 2012, around Rs.22.73 trillion is being invested in the expansion of the road and rail network, construction of new sea ports, airports and in improving energy and water supplies.

Based on this affirmative investment plan, the CE industry would be looking at equipments that speed up completion of work in quick time and add value for money to customers. Brand and Price are two important factors that are considered by customers before making a decision. In the infrastructure development segment, Hyundai offers 20 tonne excavators that have multiple adaptability with excellent quality and competitive price. Hyundai service promise ensures customers are attended to all the time, maximizing uptime and reducing downtime.

Shortfall of skilled and trained equipment operators and mechanics is a big issue for several years now. What enabling efforts required at government and manufacturers level to overcome this problem?

India is blessed with immense talent however lack of trained and skilled manpower in relation to heavy earthmoving equipments is a major concern. To embark upon this issue Hyundai has already started a well maintained training centre in Pune, backed by solid infrastructure where engineers, service staff, operators, etc. are trained on operating skill and basic maintenance aspect of Hyundai excavator. We are also in the process of developing regional training institutes to offer training to customers’ mechanics and open market mechanic.

Construction Equipment
Simultaneously, Government needs to support the efforts of industry players through three growth enabling initiatives: 1) Increase the availability of trained manpower 2) Lower the tax burden and remove current tax anomalies that encourage imports 3) Introduce policy measures (i.e. encourage domestic value addition through mandatory 30% level of indigenization, set up an industry focused R&D institute) to strengthen industry capabilities. Raw material cost could also emerge as a significant challenge. In this context, global players with presence across various countries could be at an advantage if the cost dynamics were to shift in favor of some other country.

How much is the shortage of skilled hands a problem for you and how do you plan to overcome with them?

So far we have been able to attract talent from Industry. We started our training centre prior to commencing commercial production. We have highly skilled trainers both for service personnel and machine operators. We are running various training programme to increase efficiency.

In developed countries, the share of equipment sold to rental companies is over 50%, whereas in India it is below 10%, what are the key issues for rental business not taking off in India and where do you see rental business in the next couple of years? What enabling business environment needs to be created for its future growth?

Equipment rental business is currently pegged at 7 to 8 per cent of the total construction equipment industry. The developed markets have rental penetration between 50 to 80% of the total construction equipment sold in their domain. India is still at 7 to 8 per cent rental penetration and we are looking at the industry growing to the 15 to 20% in next couple of years. The more the rental penet- ration, the more tilt towards rental.

The medium term outlook for construction equipment rental is healthy and robust, especially from the roads, power and ports sectors.

Interstate transactions for equipment and virtual are both an unwanted stress and challenge to any services company.

Used equipment trends is also picking up in India, and few auction companies are making in roads here, is this a threat or an opportunity to the manufacturers?

While there is good potential for used equipment in India, the market size of which is estimated at about three times the primary market, India does not have an established common platform for trading in used equipment. Again, the current rental penetration in India at around 7 to 8% remains low as compared to the global standards of 50 to 80%. An average of 30% of the equipments sold in Europe and over 60% in the United Kingdom are to rental operators. A robust rental market enables reduction in investments in projects by outsourcing the equipment requirement (including spares and services) and improving capacity utilisation of equipment. The key equipment in the rental fleet in India currently are backhoe loaders, pick and carry (PNC) cranes, excavators, motor graders, and vibratory compactors.

While a number of organised equipment banks have entered into the fray with large fleets (of over 100 equipments), the market continues to be serviced mainly by small fleet owners with less than 10 equipment each. However, there are various structural/ operational concerns that need to be resolved for the Indian equipment rental markets to evolve. Concerns include lack of synchronisation of inter state tax policies (on movement of equipment between states) and logistics of the equipment. Further, the dominance of unorganised market participants that operate on cash transactions (on rentals, thereby avoiding taxes and enjoying an unfair advantage to the larger rental operators) prevents the evolution of a more organized system.

What are the critical policies issues plaguing the CE industry in India that need to be addressed on a priority basis? Also how do you propose to tackle them at the macro as well as micro level for the balanced growth of construction equipment industry?

CE industry is facing acute shortage of industry specific trained manpower. This issue requires government support in terms of policy initiative supporting academics for the purpose. Complexities in interstate transaction and disparity of taxes are one of bottleneck for seamless transaction between states. One of the area which is highly untapped in our industry is leasing of equipment, which otherwise will give boost to business and also will generate mass employment in the industry. Clarity in policies and incentive for this sector is highly called for to give much required boost to this sector. Income Tax norms wrt capital assets need to be more user-friendly to encourage buying.

However, we are doing all possible from our end to overcome with these hurdles through our innovative marketing schemes benefiting customers, a push in above areas are required as policy measure from Government too.

Mr. Ramesh Palagiri, CEO & Managing Director, Wirtgen India Private Limited

The Government is strongly committed to infrastructure development—what are your projections for the CE market in short and medium terms and what propels the market in India – price, quality or brand?

Mr. Ramesh Palagiri
In the short to medium ter we expect a 15 to 20% growth in both the construction and the mining sector. “Value for money “propels the market in India, definitely not price. When you get value for money with a strong brand you are a winner.

Several manufacturers are willing to launch advanced and heavy product line in India. But in general Indian contractors and builders are not opting for it despite having several big projects in hand and facing difficulties in completing projects on time. What are the reasons holding them back for upgrading their equipment fleet-higher cost, lack of awareness, uncertainties of future projects or not bothered about quality etc? I think the contractors are waiting for real action on the ground and the projects which have been awarded or being tendered have to take off fast. Contractors will use bigger and better machines when they get convinced that the Infrastructure boom is for long-term and sustainable. Uncertainty of the pace of future projects is definitely a concern for the contractors. With regard to quality, the same will be delivered by the contractors when the owner demands the same.

Construction Equipment

Shortfall of skilled and trained equipment operators and mechanics is a big issue for several years now. What enabling efforts required at government and manufacturers levels to overcome with this problem?

At the manufacturers level, several operators training schools have been started and this could help the situation. We at Wirtgen India would also be starting our new operators school by the end of this year.

In developed countries, the share of equipment sold to rental companies is over 50%, whereas in India it is below 10%, what are the key issues for rental business not taking off in India and where do you see rental business in the next couple of years? What enabling business environment needs to be created for its future growth?

Yes, rental business is not at a very large scale today. When the pace of the Infrastructure boom picks up, contractors may start looking for rental machines to fill up the short term requirement. As the current base of machines available is less the rentals are high. Also the operation and maintenance of rental machine is an issue which the current rental companies have to resolve.

Used equipment trend is also picking-up in India, and few auction companies are making in-roads here, is this a threat or an opportunity to the manufacturers?

Auction is a good avenue for some of our big contractors to replace their fleet with new machines and we welcome auction companies.

What are the critical policies issues plaguing the CE industry in India that needs to be addressed on a priority basis? Also how do you propose to tackle them at the macro as well as micro level for the balanced growth of construction equipment industry?

What the construction equipment Industry is looking forward to is the increased pace of Infrastructure development in India just like in China.
NBM&CW November 2010
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