Excavators: OEMs Look for Longer Business Cycles

JCB Excavator

Amidst the excavators' compressed market size, manufacturers are getting prepared for the longer business cycles. The future preparation is in the backdrop of recent positive business enquiries being generated, which is likely to attain momentum in the mid-term. P.P. Basistha takes a look.

According to excavator manufacturers, they got a number of enquiries in the last eight months. However, the enquiries are yet to be converted into actual orders. They foresee segments of the orders getting materialized owing to the fresh positive business sentiments of the construction sector fraternity. The sentiments, excavator manufacturers have, are most likely to create business confidence, making the plant and machinery owners go in for fresh investments. With voices from the construction industry being raised before the RBI cuts down borrowing rates on indications of lowered/ stable inflationary scenario, the projection assessment could seem to be true.

There are of course some business improvements reported by the construction industry which are also the likely cause of the enquiries being generated for the OEMs. HCC has bagged a major order of Rs.635 crore for transportation and hydel power segments. The first part of the contract is worth Rs.454.89 crores from the Ministry of Road and Highways under the Special Accelerated Road Development Programme of the North Eastern Region. Toll road developer, IRB, registered a 14% growth in net profit at Rs.122 crore as compared to Rs.102 crore previous year. The company declared its order book at Rs.11,600 crore of which Rs.9,650 crore are to be executed in next three to four years. There are works of deep excavation involved, segment of which has been commenced by LNG Petronet, for its third phase mega terminal capacity expansion at Dahej.

However, full-scale demand from the ongoing works along with the ones recently bagged by the contractors is unlikely to attain momentum before 2015, that is when the actual site deployment of the equipment acquired through fresh acquisitions and disposition of segments of existing equipment will take place. Enquiries by NBM&CW have recently revealed (see report on equipment forecast) that sizeable segments of contractors are replenishing their older fleet, beyond economic repairs. However, focus also remains high towards optimization of existing equipment. This is an encouraging trend, yet highly complicated characterized by intense competition with manufacturers resorting to aggressive price discounting.

Sharwan Agnihotri
Mr. Sharwan Agnihotri, Head- Marketing & Key Accounts, Hyundai Construction Equipment India Pvt. Ltd. points out, "Low demand of Excavators in domestic market is forcing manufacturers to optimize operational efficiency by lowering capacity utilization of plants. This low demand and excess available capacity has infused intense price war among manufacturers bringing the margins down to the plateau levels." Not difficult to decipher, sales figures of excavators from January to October 2014 have been at 7,600 units as compared to 9,000 units in 2013 and 12000 units in 2012 during the same period. With positive enquiries being generated, amidst the character of the market remaining tight, excavator industry is expected to close 2014 by selling 9000 units.

Hyundai will improve sales & strengthen service back up for its Excavators mainly by scaling up operations and offering customized products for new applications. "We will increase coverage of sales & product support through our existing 27 dealers having 130+ customer touch points. Our overall thrust will be to sell more than 1600 units in domestic market in this calendar year

Hyundai MaGiQ

We have customized our products to cater to the growing demand from Marble, Granite and stone Quarry application by launching R220LC-7MaGiQ and R390LC-9 excavator. Both these excavators are equipped with heavy duty undercarriage, stronger bucket & reinforced structure. "We will be offering customized products for various application segments to bring profitable growth for the organization" comments Mr. Agnihotri. He further added, the new generation 9 series machines are tested for 10% higher productivity over earlier series of Excavators. These machines are equipped with value added features such as "Hi-mate" machine tracking tool through which machine location, performance update, daily operation history, real time alarm information, theft prevention, fuel efficiency management and fleet monitoring system can be tracked.

In their plan growth plan, Hyundai is appointing new dealers at strategic locations to promote sales & improve touch points for customers. They have also identified efficient spare parts distribution and skill development activities for operators and customers as the key differentiators at the market place. In line with this philosophy, the company is involved in technical training for operators, maintenance engineers and the customers. These training sessions are conducted on site and at its training centre at Pune. For efficient spare parts supply to the customers, the company has a mother warehouse in Pune and regional warehouses in Kolkata, Hyderabad and Delhi. Hyundai derives around 40% of its Equipment sale business from the repeat customers which validates the key philosophy of the organization – "Partnering Profitable Growth".

Hyundai India manufactures 8 ton to 50 ton class tracked excavators in its Pune facility. Globally, Hyundai Heavy Industries manufactures Excavators between 8 ton to 120 ton class.

A M Muralidharan
Volvo CE has been looking to expand business in the complex business environment directing machines intended for desired applications, notably through marketing higher capacity excavators. According to Mr. A.M. Muralidharan, President, Volvo CE, India, "We have been focusing on above 20 tons class segments. Targeting the overburdened quarry and mining segments, we have also been looking to promote our 48 tons and 70 tons class excavators. The higher capacity excavators are able to provide 5-7 percent higher productivity as compared to other manufacturers' offerings in the similar class. Besides, the machines score better on fuel efficiency and lesser total operating costs."

He says, "We have been targeting specific projects to promote the higher class machines. With a combined application of 8x4 and 10x4 Volvo tippers, users of the higher capacity excavators have been able to achieve lesser total operating costs."

Volvo Excavators

While Volvo CE has been focusing towards higher capacity excavators, it has remained keen to promote below 30 tons class capacity machines as sixty percent demand of the market share is occupied by similar category. According to Mr. Muralidharan, "Large segment of the buyers of the below 30 tons class units are first time buyers. To access the potential segment, we have increased our dealership network to 18 from 15 to expand our reach. Support to the dealers is being rendered through our training programme to increase the manpower competence and other systems support," says Mr. Muralidharan.

To avoid brand substitution by making product support affordable for customers, Volvo CE has expanded its 'Reman', remanufacturing support to cylinders and engine components apart from hydraulic pumps as earlier. Mr.Muralidharan mentions, "We have extended support to more models of our excavators across different capacities and class through Reman." Volvo CE also provides support for its products through 'CareTrack'. GPS and the mobile phone network, or data via satellite are coordinated in CareTrack. Volvo CE also has customer support agreements. The Swedish equipment manufacturing major has an active population of 5,000 excavators across the class in India.

Amit Gossain
Brand strengthening is being looked by JCB through its new JS 120 excavators. According to Mr. Amit Gossain, EVP, Sales & Marketing, and Business Development JCB India; "We have recently introduced the upgraded JS120 which is powered by JCB's ecoMAX engine for enhanced fuel efficiency and productivity. JS 120 comes with air conditioning for ensuring operators comfort in harsh Indian summer. It is fitted with remote monitoring system "livelink" which monitors the health parameters of the machine and keeps the owner informed on the status of the machine. Through livelink, the owner can track the location and usage details of the machine. The system also provides proactive reminders for maintenance so that it can be serviced at recommended intervals." He adds, "JS120 has been designed around its end-user for excellent operator environment; the upgraded cab which is 25% bigger and integrated air-conditioning enhances operator comfort.

Mr. Gossain mentions, "we are well positioned to meet the wide demand applications of Indian construction sector through our product offerings of excavators between 3T operating weight (JS30) to 36T operating weight (JS 360LC) to serve the plant hirers, earthmoving and quarrying customers."

JCB Ecomaxx Engines

Optimization of product support is being focused by JCB to deliver higher equipment uptime to its excavator owners, through its Ecomaxx Engines. Mr. Gossain explains, "fitting our excavators with JCB's Ecomaxx engines we have ensured that our customers gets the excavators along with the engines serviced with JCB dealers. To provide higher equipment uptime, we have carried improvisation in the engines by upgrading the air filtration system to make it robust and fail-safe to improve life of the engine."

The engines are available in the range of 76 hp to 150 hp. It features naturally aspirated, turbocharged or common rail versions depending on the type of applications. Mr. Gossain points out, "the engines are pressurized by a high pressure rotary pump and have an oil change period and engine filter change period of 500 hrs each reducing maintenance cost." JCB has 600 dealership outlets to provide product support. The company has warehouses at Pune, Chennai, Ballabgarh and Kolkata for parts support.

Caterpillar India will be looking to expand its excavator business banking on its new 320D Series 2 hydraulic excavator. According to Caterpillar India officials, "our new 320D Series 2 excavator is designed and manufactured with the customer in mind. With a robust engine that works with low pressure fuel system with an electric governor, 320D2 is suited for fuel in emerging markets. This system is less susceptible to inferior fuel. This 7.01 liters engine system also contains an electric fuel priming pump circuit and is automatically activated to improve serviceability and reduce downtime. With Eco-Mode® power setting, with this new engine system, Cat® 320D Series 2 is capable of reducing the fuel consumption up to 15% in heavy duty application."

Caterpillar Excavator

Officials elaborate, "320 D Series-2 comes with engineering improvisations. This includes, Cat® C7.1 engine used in the excavators that meets U.S. EPA Tier 2, EU Stage II and China non-road machine emission stage 2 regulations. A new filtration system uses a primary fuel filter / water separator and a secondary fuel filter to ensure clean fuel throughout the system. The field-proven C7.1 engine is designed for ease of service and can work efficiently at altitudes up to 4,000 meters (13,120 feet). Compared to its predecessor, the new engine uses approximately 3 to 5 percent less fuel, depending on work mode. An automatic engine-speed control lowers engine rpm during no-load or light-load conditions to minimize fuel consumption." 320D Series 2 is manufactured at Caterpillar India's new facility in Thiruvallur in Chennai.

To ensure availability of products, Caterpillar's Financial Products Division and Tata Capital Financial Services Limited has, recently entered into a tie up to offer customers finance options for purchasing Cat equipment at all their dealership stores. Caterpillar offers services like rent to purchase, trading of existing machines, and short term rentals.

Caterpillar is looking forward on its customer support agreements (CSA) with the support of its dealers Gmmco and Tractors India Private Limited to strengthen its brand among existing customers for future sales. Officials say, "effectively executed CSA's have proven to be one of the best methods to lower customers' total owning and operating cost resulting towards improvement of customer loyalty."

They mention, "we are continuously ramping up our services and distribution network across India through our two existing dealers for being in close proximity of our customers and also to minimize lead times for ensuring availability of parts and service engineers."

S Manjunath
Business footprint expansion is also looked by Doosan. "Backed by our 28 dealers, we will increase our sales and customer support coverage," says Mr. S Manjunath, National sales Manager, Doosan Infracore India. He mentions, "We will refrain from aggressive business promotion of our excavators in India through price discounting rather making huge loss to the company, our emphasis is to earn decent margins on our products for long-term sustenance in the market place to provide quality service to our customers availability." We enjoy the status of rendering support at the shortest time to service the equipment on customer call, as compared to our competitors. Our shortest response time coupled with well crafted support packages has ensured high availability of our 3000 active excavator units working at construction, road, blue metal quarry, Granite, Irrigation and mining sites.

He continues, "One of our recent initiatives towards product support has been setting up Doosan's exclusive fleet depot at Dhanbad in Eastern India along with Udaipur and apart from Chennai. The fleet depots have been set up to serve our large population of equipment working in the regions."

Doosan Heavy Excavator

Doosan targets to complete 2014 by selling 350 units as compared to 470 excavators units it sold in 2012. It will broaden market base for the excavators through targeting newer applications through total product packages. "We have best in class mobile bucket crushers. Our drilling attachments and hydraulic breakers are much suitable for granite and other quarrying applications. The attachments integrate well with the excavators. They are being promoted with the excavators as a valued selling proposition. The broader initiative is to position ourselves as a total solution provider through a single window. We are also looking to promote 30-36-50 tons class units in an increased way to granite & Mining sector," mentions Mr. Manjunath. Looking at firm demand fundamentals, Doosan will explore the option of assembling its excavators at Sricity near Chennai or Bengaluru. Doosan's Bengaluru facility presently assembles compressors and light tower units.

Fundamentals Driving Preparedness

The ongoing business expansions of the excavators' manufacturers through network expansion and introduction of product line is essentially being driven on the firm demand fundaments of the market, although cyclic in nature. This can be said to be true examining the immediate past demand trends, when after seeing a significant decline in 2009, the demand for excavators witnessed an extraordinary growth with market touching the level of almost 15,000 units in 2011. However, the present projections have fallen short. According to the early industry estimates, demand for excavators in 2013 was projected to be around 12,000 units. Demand projections of 14,000 units were assessed in 2014. Taking into consideration the intense cyclic nature of the industry buoyed by the volatile trend of the construction sector, manufacturers will be required to take a well calibrated approach towards expansion. This will be vital for ensuring sales and also maintaining focus on customer support, ensuring brand recall in the long run.
NBM&CW December 2014
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