Sandeep Singh, Managing Director, Tata Hitachi
How is Tata Hitachi performing in the current scenario of high steel and fuel costs?
As commodity prices continue to sustain their bull run since the beginning of the pandemic, its cascading effect on steel-dominated industries, such as Construction Equipment is becoming more pronounced. We are seeing that it is having a direct impact on our operating profitability, which we try to offset only to a minimal extent by means of price increases to the buyers.
Presently, there are headwinds in the market caused by inflation, rise in fuel costs, etc. The Government and RBI are taking various measures to combat inflation aiming to sustain macroeconomic stability and growth. We hope these measures bring the much-required respite.
At Tata Hitachi, we are controlling costs, and innovating to improve the efficiencies in our machines. Once the monsoons subside, we expect the market to rebound and to have a sustained growth momentum fuelled by the infrastructure projects announced by the Government. In addition, Tata Hitachi’s participation in EXCON’21 has also thrown up a lot of business opportunities, which is helping us build a strong pipeline.
We are seeing sales of excavators growing but that of backhoe loaders going down; is this because of cannibalization by the mini excavator to some extent?
Mini Excavators have been designed to offer solutions specially tailored for Indian conditions and the local regulations. Moreover, these machines are compact, versatile, can work in extremely constrained spaces, and can be easily transported in small pick-up trucks. Indian Customers are getting increasingly aware of these benefits and are switching to Mini Excavators from Backhoes.
Now the Mini Excavators constitute to 9% of the overall Hydraulic excavator market and their sales are getting better. We also believe that the market for the mini will continue to grow.
Tata Hitachi has three Mini Excavator models TMX20 neo, ZX23U, and ZX33U ranging from 2-Ton to 3.3-Ton. We have also unveiled an all-new indigenously developed 3-Ton Mini Excavator NX30.
So, will the backhoe market remain at 35000 - 40000 a year, or will the mini excavator’s growth impact its sales?
Mini Excavators can fit in places where Backhoe loaders can’t. Their overall versatility allows them to be used in many different applications and essentially keeps them running at low operating costs. Anybody who carefully considers the reasonable limits of their own needs and the features available to meet them will inevitably find a cost-effective solution among today’s Mini Excavators.
In Most parts of the world, especially in the developed markets, Mini excavators have a dominating presence in entry-level equipment category. However, in India, the Backhoe loader was introduced very early and has been culturally accepted as the entry-level equipment in the construction industry. Hence, this shift is expected at a much slower pace.
Rental rates seem to be the same as they were 2-5 years ago. What is your observation?
I wouldn’t exactly say so, because if this was the case then the rental market wouldn’t have gone up. There are new and upgraded models on the market, and their price has gone up along with the construction base price. Rental companies are now charging per day of usage instead of per hour as was the practice earlier.
In the case of the backhoe loader, we have observed that since its price has gone up by 20% post BSIV, the rental profit margins have fallen. In such a scenario, rental operators are delaying buying new backhoes and are opting for the refurbishment of their existing machines.
In our recent interview with Mr. Gadkari, he discussed alternate fuels like electric and hydrogen and the technologies being used in construction equipment. Do you see any breakthrough in alternate fuel usage in the next five years?
Unlike Passenger car manufacturers like Maruti which have increased production of cars with CNG, construction equipment will take time to develop. At Tata Hitachi, we have started developing dual-powered machines with CNG as an alternative fuel in addition to diesel-powered engines. But we need adequate charging infrastructure to make the concept viable. At Tata Hitachi, we have used the EXCON as a platform to showcase our technical capabilities in terms of a CNG-powered Backhoe loader in the 11th edition and a 20-Ton Hybrid Excavator in the previous edition. Technology is available, however, the infrastructure push from the government is required.
How is Tata Hitachi’s export business doing?
Tata Hitachi’s export business is limited by our agreement with Hitachi Construction Machinery (HCM), Japan. As per that we can export to SAARC nations apart from select countries in Africa and the Middle East. Also, we undertake contract manufacturing for HCM. Overall, we are exporting about 400-500 units to these markets. The markets of Sri Lanka, and Nepal, where we were exporting around 200 units of equipment, crashed this year.
What about your domestic sales?
Despite the stiff competition, we are confident that customers will opt for Tata Hitachi’s high-quality machines for their sturdy, robust structure and we will achieve our target sales and growth. We have recently launched new products like the 5-ton Wheel loader, the 3-ton Mini Excavator, and a 20-ton Hydraulic Excavator – all of which come with upgrades.
Almost every country is experiencing inflation and there is a lot of volatility in the markets (further compounded by the Ukraine-Russia war). Although the Indian Government has announced huge investments in infrastructure development, do you think we will see some growth in the CE Industry in FY 23?
It is an alarming situation, no doubt. But as per my experience, as long as there is high domestic demand, India will not be affected very badly. However, inflation in our country needs to be controlled along with the rising commodity prices.
The government is the main anchor for growth through increased Capex in infrastructure. A 35% increase in Capex was announced for this fiscal with water supply, railways, PMGSY, and Swachh Bharat Mission seeing a significant increase in allocation. Add to this, NHAI is focusing more on constructing larger multilane highways through HAM & auctioning completed EPC projects through InVits & ToT. Further, they are monetizing projects through SPVs.
The real estate sector which has been lying low for many years now has bottomed out in most parts of the country & is now looking up. With increased urbanization & the growth of the high-paying IT sector, demand for housing in metros is showing significant improvement & is expected to continue. With new investments coming through the various PLIs announced, this is expected to further grow, adding to the demand for stone aggregates, sand, iron, steel, and cement.
All these demand drivers should help in pushing investments in these sectors to revive the CE industry. However, timely execution of all these projects is very important to drive growth in the CE industry