Arvind K. Garg, Chairman, bauma CONEXPO INDIA - Task Force and Executive Vice President and Head - Construction and Mining Machinery Business at Larsen & Toubro
The Infrastructure Sector is experiencing a lot of uncertainty due to Covid-19. How do you think its growth prospects can be sustained and what measures can be taken?
Construction Equipment (CE) demand grew by almost 25% yoy during 2015-19. The last fiscal was, however, a tough year with demand contracting during the first nine months but was seen as reviving in the last quarter. Covid-19 has been a ‘black swan’ event that has impacted the sales of CE since March 2020. The first quarter of the current financial year has seen a drop of about 50% in most product categories. However, we are seeing some signs of revival in Q2. July saw some green shoots with demand trend reviving for Backhoe Loaders and we expect demand for Excavators to follow suit.
Our economy and hence construction activities were affected due to the lockdown which led to slowing down in execution of several ongoing projects and a lot of construction equipment was lying idle at sites across the country. But we now see the utilization of assets gradually improving - across sectors. Mining activities, covered under the Essential Services Maintenance Act, are also active and we see a growing demand for equipment in this sector. Since Q2 is usually a period of subdued demand due to the monsoons, we expect the actual revival to be H2 of FY 2021.
The revival in demand of the CE industry will depend upon many factors such as return of workers and operators post lockdown; financers being able to manage their portfolios in line with prudent norms to restart progressive financing options; construction activities gaining pace; payments from Government authorities; CAPEX plans of the private sector, to name a few.
We believe that the GOI is focussed on Infrastructure segment and have seen awards of large-size road contracts even during the lockdown. NHAI is considering awards for almost 4500 km of highway construction contracts in FY2020-21. Hence, we expect the demand to revive from the early part of H2 of the current FY.
We are continuously working out plans to face this short-term contraction in demand and will focus on cost containment and customer support activities to the large population base of Komatsu, Scania, and L&T machines. Our customers are very understanding about the prevailing situation and we are confident that we will get their full support to tide over these uncertain times.
For the CE industry, 2020 seems to be the ‘year of survival’. What is your outlook for FY2021? Could it be the ‘year of revival’ and if so, where do you see equipment demand coming from?
Covid-19 brought the activities in construction to an unimaginably slow pace. Most of the projects were affected on account of the fear of infection and due to the migrant workforce returning to their home locations. However, as I have said in the foregoing commentary, we are observing the revival and restarting of many construction projects across the country and the re-activation of machines with better utilization levels.
Most economists are advising increase of investment in Infrastructure to increase employment and boost the economy; hence, Infra development should be one of the prime beneficiaries of the revival plan of the GOI. The key to revival depends on the GOI, State Governments and other Government agencies spending on infrastructure development, and we find that the Centre and State Governments are doing their best to support the ecosystem by keeping the developmental plans intact.
It is also our belief that savings from the lower crude oil prices could be used for the road and urban infra development through the CRIF (Central Road and Infrastructure Fund). As an industry, we have a very positive outlook, as the government has been reacting quickly to the challenges and we are confident that the government will take all steps to revive Infra development to bring normalcy back by 2021.
What were the factors behind the rescheduling of bauma CONEXPO INDIA to February 2021? Do you think that it will be a good time to hold the event?
bauma CONEXPO INDIA has enjoyed a very good response in the past few editions after we moved to the NCR region and has gained tremendous prominence. The exhibitor response for the forthcoming edition has also been great.
As the purpose of the event is to showcase the capability of the Indian CE industry to customers and provide an excellent platform for CE manufacturers and suppliers to exhibit their products, new technologies, and capabilities, it is necessary that the event is held when our customers can travel freely and participate in the event without too many health and safety concerns.
Since we expect the current uncertainties to be resolved by the end of the calendar year, it was felt that rescheduling the event to February 2021 would help all the stakeholders in having a great event, which would act as a catalyst in the revival of market demand and a change agent for improving the sentiment.
