In your view, will the current growth trend in the excavator segment continue in 2023-24 and beyond
The excavator market has witnessed continuous growth over the past five years, with a record-breaking 26,000 machines sold in FY 2023. Considering the upcoming elections in the first half of 2024, the second half of 2023 will see high uptake, which means that the growth prospects for the next 3-4 years (after the elections) are anticipated to be positive.However, there are challenges associated with unauthorized exports that have affected the market. Approximately 2,600 machines were exported after being purchased in India with GST, leading to unauthorized exports.
Despite the challenges, the Indian market for excavators is growing steadily, and it is expected that the growth trend will persist from 2024 onward. No doubt, the introduction of the Goods and Services Tax (GST) in 2017-18 had a dampening effect when the rate was set at 28%, but when the rate was subsequently reduced to 18%, it improved the market conditions to a great extent. This period also saw the accumulation of surplus inventory.
Is the growth of the Excavator segment at the cost of the Backhoe Loader
It cannot be denied that growth in the excavator market has had an adverse impact on the market for backhoe loaders, as it has led to a certain degree of cannibalization. However, there are two aspects to this growth: firstly, there is genuine growth driven by increased project requirements and factors such as the overall expansion in the industry and the rising demand for construction equipment.Secondly, there is growth that arises from the implementation of BSIV regulations, which has caused the prices of tyred equipment to increase. However, rental rates have not adjusted immediately, prompting many individuals to consider purchasing mini excavators or 14-ton excavators instead of backhoe loaders, which have become relatively expensive.
Over time, these rental rates are expected to correct themselves, which may lead to stabilization in the market. The shift towards mini and 14-ton excavators may also reach a point of stability as the rental market adjusts to the new pricing dynamics.
What has been the overall impact of Kobelco’s presence in the Indian market
Kobelco’s growth over the past decade or so has been instrumental in bringing significant changes to the Indian market and shaping the mindset of buyers. To become a leader in the high-end excavator segment, Kobelco has focused on creating market transformations rather than simply convincing individual customers. We have consistently promoted the benefits, features, and advantages of our high-end products to educate and attract customers.One key aspect emphasized by Kobelco is the use of CRDI engine, which offers improved fuel efficiency compared to traditional mechanical engines, resulting in reduced fuel consumption and cost savings. Even a modest fuel saving of one litre per hour can translate to substantial financial gains over time. For example, over an average of 10,000 hours of usage, which is roughly four years, the customers can expect an additional saving of Rs 10 lac.
In addition to fuel efficiency, Kobelco excavators are designed to operate quietly, making them suitable for working in residential areas both during the day and at night. Instead of solely promoting the Kobelco brand, the company has focused on selling the concept of advanced technology. This approach has proved to be effective, with prices for our high-end machines experiencing a growth of more than 12-14% in the last four to five years.
In which key areas is Kobelco keen to invest and expand its operations
Secondly, Kobelco plans to provide comprehensive solutions alongside its products. We recognize that the product itself is a one-time cost, and we aim to address the ongoing expenses related to spare parts, timely services, and turnaround time. By considering the hourly cost of ownership, we strive to develop various cost-effective methods for customers. This strategy ensures that customers perceive the value, not just in the initial purchase, but also in the long-term operational costs.
The third area revolves around a solution-oriented approach that extends beyond excavators. Kobelco is committed to meeting customers’ additional needs by offering attachments that enhance the functionality of excavators. For instance, we provide drilling attachments for granite applications and prioritize attachment development on a global scale. We have also introduced teleporters, which facilitate tasks such as demarking and debulking in metro stations, as well as long-reach capabilities up to 85 tons. Kobelco takes pride in being a pioneer in the field of long-reach equipment, with our SK520 and SK850 models gaining significant popularity.
Overall, Kobelco’s investment and expansion efforts focus on transforming our workforce into solution providers, providing comprehensive solutions alongside products, and extending their capabilities beyond excavators through the development of various attachments and specialized equipment. These initiatives aim to enhance the company’s appeal to buyers by delivering added value and meeting a wider range of customer needs.
How does Kobelco strike a balance between competing in the high-tech, higher tonnage and the more premium segment of products, while being cost-competitive in the 20-ton class
To maintain a strong position in the highly competitive 20-ton market while upholding high-end technology and ensuring top-notch quality in our premium class of products, we employ several strategies. Firstly, we understand who our competitors are in high-end segment. We know that sustaining growth in high-end segment requires a more comprehensive approach rather than solely focusing on increasing our market share. By engaging in healthy competition with our competitors, we continuously strive to improve our offerings.Our primary strategy involves expanding the high-end market by emphasizing shared features such as fuel efficiency of CRDI engine, advanced technology, air-conditioned cabins, and operator comfort. By promoting these aspects collectively, we aim to elevate the entire high-end market, thus, naturally compressing the economy models.
Additionally, we adopt an aggressive approach when it comes to large-scale projects. When customers require multiple machines, such as 20-25 or even 40 units for extensive road projects, we emphasize the superior reliability of our Kobelco machines. By showcasing the value and dependability of our products, we ensure that we don’t lose out on such significant orders. Although we may compromise on our profit margins in these instances, our primary focus is on securing these sizable contracts and maintaining our market presence. This strategy allows us to effectively compete with low cost and economy models while highlighting the advantages of our offerings.
In remote infrastructure projects and in mining areas where excavators often operate for extended periods of over 20 hours a day, machine availability becomes crucial. How does Kobelco ensure maximum machine uptime and availability of both spare parts and service support to meet the demands of such projects
To ensure maximum machine uptime and timely availability of parts and engineers, we have implemented several measures, particularly in regions such as Madhya Pradesh and Jharkhand where project locations might pose logistical challenges.Firstly, we have established a strategic principle that nothing should be more than 200 km in diameter or 100 km in radius. This means that we locate our branches within close proximity to our customers, to ensure convenient access to our services and support. By adhering to this principle, we optimize our ability to provide timely assistance, even in remote areas.
We have a dedicated “feet on the street” approach, which involves deploying our service and sales teams to cover various regions. We have separate teams for infrastructure projects and mining operations, as their requirements and operating hours differ significantly. Infrastructure projects typically run for 10 to 12 hours a day, while mining operations can run continuously for 18 to 24 hours. Our teams are specialized and cater to the unique needs of each sector.
For infrastructure projects, we work closely with our dealers to ensure efficient service and support. On the other hand, our mining operations are managed like a well-organized circus tent. We have a container warehouse and a dedicated mining support team that closely monitors mining activities. This approach allows us to swiftly respond to any maintenance or operational needs that arise in the mining sector.
Our focus on the mining industry has yielded significant growth in recent years, with our market share increasing and placing us in the top three positions. In the 38-ton segment, we are the market leader with more than 30% share, including our economy models. This highlights our commitment to providing high-quality machines and services, regardless of the model or segment.
By strategically locating our branches, deploying dedicated teams, and focusing on the unique requirements of different sectors, we have been able to expand our business successfully, even in challenging project locations.
Considering the liquidity challenges faced by many mid-size contractors, several of them are exploring alternatives such as renting, leasing, buyback, and equipment refurbishment instead of purchasing new equipment. How is Kobelco responding to this and addressing contractors’ need for flexible ownership options
To cater to the mid-size segment of customers who prefer not to buy a new machine, Kobelco has recognized the importance of the used-machine business. We understand that these customers value Kobelco’s durability and reliability, as our machines can provide an extended lifespan compared to economy models. As compared to an old technology excavator, using an excavator with high-end technology can almost double the equipment’s life cycle.For customers seeking used machines, we have introduced financial solutions through our dealerships. This initiative began last year and has already achieved success in markets such as Bangladesh, which has a high demand for second-hand Japanese machinery. We have identified customers who specifically prefer to purchase used machines. This approach ensures that the demand for new machines is not compromised for customers who can afford them, while simultaneously providing an opportunity for aspiring customers to enter the market.
In this regard, we encourage customers who are purchasing new machines to consider selling their old machines to those who aspire to own one. By facilitating this exchange, we can fulfil the needs of both parties. Our focus is on building a network where aspiring customers can find suitable used machines from those who are ready to upgrade to new ones.
For the upcoming year, we plan to purchase and resell 45 machines in this manner. As we gain more experience and refine our processes, we aim to scale up this initiative to eventually reach a target of 100 machines. Surprisingly, we have found that this approach is not only beneficial for customers but is a win-win situation for both, manufacturers and customers.
By actively engaging in the used-machine business and offering financial solutions through our dealerships, we aim to cater to the mid-size segment of customers who prefer used machines over new ones. This strategic focus allows us to meet the diverse needs of customers while expanding our market presence and driving sustainable profitability.
How significant is Kobelco’s focus on tailoring its R&D efforts specifically for the Indian market, considering the unique requirements and challenges of the industry
Kobelco has taken several initiatives towards India-specific research and development (R&D) to ensure the quality and reliability of its machines. Two key areas of our focus are Structures and Filtration systems.In terms of Structures, Kobelco has prioritized the development of heavy-duty structures that exhibit exceptional durability and reliability. This emphasis on robustness has resulted in significantly reduced failures in Kobelco machines’ structural components. Customers can rely on the strength and integrity of Kobelco’s heavy-duty structures even under demanding operational conditions.
Regarding Filtration systems, Kobelco has implemented advanced measures to address fuel adulteration concerns. To combat this issue effectively, the company employs a three-level filtration system. Initially, the filtration system included 7-micron and 5-micron filters. However, recognizing the need for more stringent filtration, Kobelco introduced a 2-micron filter in 2007. Prior to launching this system, extensive testing was conducted on Kobelco’s existing machines in the field to assess the presence of sulphur. Furthermore, diesel samples were sent to Germany for thorough analysis and approvals. Kobelco is meticulous in its approach to ensure the highest standards of fuel quality and prevention of adulteration.
The R&D and engineering teams at Kobelco are known for their capabilities and expertise. Their dedication to precision and quality control is reflected in the low failure rate of engines, hydraulics and structure. As a testament to their confidence in the products, Kobelco provides a conditional 10,000-hour warranty for major power train components ensuring customers have peace of mind and trust in the longevity and performance of Kobelco machines.
Through its R&D initiatives, Kobelco continuously strives to enhance the quality, reliability, and performance of its machines, delivering exceptional value to customers in terms of durability and longevity.
To what extent does Kobelco leverage automation and robotic technologies in its excavators to enhance productivity, efficiency, and overall performance in the Indian market
Kobelco is leveraging automation and robotics technology in its excavator offerings to enhance productivity efficiency and overall performance in the Indian market; however, there are certain challenges and considerations to address.One of the key factors is price, which is a key factor in the price-conscious Indian market. Compliance with statutory norms is also crucial. Currently, there are no emission norms for excavator engines so there is continued usage of outdated engines, which results in high carbon emissions. However, there is a growing emphasis from the MoRTH to transition to alternative energy sources.
Globally, Kobelco is testing unmanned excavators in Japan. These advanced machines allow operators to control them remotely from their offices, operating up to three excavators simultaneously. This technology offers increased convenience and efficiency.
Affordability is a major concern in the Indian market. There is a small percentage of customers, particularly those involved in coal mining who require excavators above 38 tons or 50 tons, and are seeking more advanced models to reduce costs due to tight per cubic meter rates., Kobelco is actively working on meeting these requirements, but the Indian market needs to be prepared in parallel.
Which markets is Kobelco targeting for exporting its products from India
In addition to catering to the domestic market, Kobelco is also exporting its excavators to various regions including the Middle East, Africa, Nepal, Bhutan, and Bangladesh. We also have started exporting attachments to Southeast Asia and may add few more countries in the future. This will position India as a manufacturing hub for global markets.The attention on India as an export destination is increasing, and Kobelco is aligning its focus accordingly. The company recognizes the significance of the 2024 elections in India, as the outcome is expected to influence the momentum of growth. Kobelco anticipates predictable growth in the Indian market following the elections, further driving its commitment and investment in the region.
