What equipment sales do you envisage in FY 2023-24 considering the ongoing and upcoming big ticket infra projects and the elections?
The CE industry was fortunate to clock 12% growth in the first year of the pandemic (2020-21), driven mainly by earthmoving equipment sales. However, after the implementation of BSIV norms in 2021-22, the CE industry saw degrowth by 11% - mainly in the earthmoving and road construction equipment segments.
In 2022-23, the first half of the fiscal has seen robust growth of nearly 20% YoY, mainly due to the base effect. We expect the industry to recover and post double-digit growth for the full year, given the investments in infra development planned by central and state governments. 2023 is the penultimate year before elections in H1 2024 and therefore we expect the government to continue to make capital investments in infra sector and on their timely execution. We expect growth in the next fiscal to be in high single to low double digit.
How is your company gearing up to meet the forecasted demand?
Tata Hitachi is confident of meeting the anticipated increase in demand with its range of machines that are fitted with high tech features. For example, our EX Super+ and ZAXIS GI series of excavators give online access to their location, an online health monitoring system, etc. and we have made several other improvements to make them more productive.
Our TL340H wheel loader has Hydrostatic technology (most competitors offer the traditional hydrodynamic technology), and a variable displacement pump which gives it a greater fuel saving advantage. Equipped with Insite, it gives customers real-time information on the status of the machine. The new model ZW225 also incorporates the latest technology from Hitachi. It has been designed to cater to the fast-growing 5-ton wheel loader market for use in the mining industry and for large-scale material handling jobs.
A major segment of the Indian backhoe loader market is hiring machines from rental companies hence, cost-effective performance and fuel efficiency is one of the major selection criteria. To meet this demand, we are offering SHINRAI PRIME and SHINRAI PRO backhoe loaders which have been designed to work in demanding jobsites. The SHINRAI series boosts fuel efficiency with its EHS (Excellent Hydraulic System) wherein the flow is regulated by sensing the pressure of the system. Apart from low fuel consumption, SHINRAI PRIME has high bucket forces, dump height, and good reaches. Both our Backhoe Loaders and Wheel Loaders are CEV IV ready. We have recently launched EX70 PRIME with a range of enhanced features and some improvements. The latest is NX30 - an indigenously designed and developed Mini Excavator - the first from our Next Gen series.
Along with our high performing, reliable products, we have comprehensive support solutions for our customers; services include Full Maintenance/Annual Maintenance Contracts and Extended Warranty. Our field diagnostic vehicles provide quick onsite troubleshooting, and our mobile workshops can reach customers’ project sites to carry out repairs so that their machines have minimum downtimes.
What progress has the CE Industry of India made in lowering carbon emissions, undertaking R&D for autonomous machines, developing smart machines with electrification and digitalization, and in using alternative fuels like hydrogen?
Last year, at COP26, our Hon’ble Prime Minister Shri Narendra Modi made a commitment to achieve the target of net zero emissions by 2070. In line with this commitment, the CE industry is quite proactive in exploring alternative fuels. Already, it has shown that it is possible to make CNG-powered machines. However, their sales will depend on customer demand and easy CNG availability. If demand increases, the CE industry will scale up production of CNG-run equipment.
The industry is working with various stakeholders to explore use of biodiesel, but there are major challenges such as the complexity of logistics and the regulations. It is also important to understand that construction equipment per se demands high energy, hence, the approach towards zero emissions is going to be graded as technology. Segments like compact equipment below 7-ton, are likely to move to battery-powered technology, which is already available with most OEMs, but it is unlikely to become popular soon due to the high cost.
Tata Hitachi had displayed its CNG-powered backhoe loader SHINRAI at Excon 2022. We were also the first in the CE industry to showcase our hybrid excavator ZH200 at Excon 2017, which met with a tepid response.
Even in developed countries, the technology roadmap is still in its infancy. However, a transition to alternative energy is likely to be seen towards the end of this decade. Till then, the OEMs should look at improving the fuel efficiency of their existing machines and extending the replacement intervals of the oils and greases used, so as to lessen their impact on the environment. At Tata Hitachi we are continuously working in this direction.
Rental companies are voicing their concern on the entry of some OEMs into the rental space; how do you view this situation?
Organized rental is a very small part of the CE market in India; it constitutes less than 15% of the overall market share. Currently, most of the rental companies are offering specialized high-value equipment where they have considerable expertise. Therefore, to say that they are feeling the heat with some OEMs entering is a misnomer. The market is large enough to absorb many rental players even if the industry starts to engage OEMs as they will offer more organized rental services.
Tata Hitachi’s rental business targets only established clients who need to deploy our machines for longer durations and who are financially strong to make timely payments. We do not look at mass rental suppliers. In the near future, we do see OEMs with rental arms and large rental companies co-existing in the rental space.
For India’s construction to be at par with world standards and to become the 2nd largest industry in the world by 2030, what are the grey areas that the CE fraternity and government should priortize?
To enable India to unlock its full potential, under Vision 2030, iCEMA along with BCG identified three key priorities: sustained demand creation, robust operating ecosystem, and creation of a stable foundation with the right technology and talent base.
Variability in demand has been a key impediment to the progress of the CE sector in India. Long-term visibility of the project pipeline and certainty around project execution timelines will enable the industry to be more receptive to meeting the Government’s infrastructure objectives. Although currently, there is the National Infrastructure Pipeline (NIP) till FY24-25, there is a need to develop a 5 to 10 year infrastructure roadmap for the country.
Further, to propel exports, targeted efforts must be made through well-structured export incentives, targeted FTAs with high potential export geographies, optimized input costs, and marketing campaigns in the export-focus destinations.
India’s domestic development of precision high-value components has not picked up because the scale of domestic demand is not sufficient to support the investment required. As a result, 25-40% of components (by value) are imported into India by CE manufacturers from component suppliers based in Korea and Japan. To address this, component manufacturing parks should be set up in strategic locations, with best-in-class incentives like the PLI scheme and access to ecosystem benefits. This will incentivize global players to relook at India as a viable market for setting up their component manufacturing units.
In developed countries, organized rental addresses more than 50% of the CE demand, while it is less than 15% in India. The Government must create contractual protection mechanisms to ensure contract enforcement between rental agencies and customers, which has thus far been one of the key deterrents for global rental players to scale up in India.
Both the infrastructure and CE industries face challenges in getting a steady and stable access to funds. Financiers are unable to offer low-cost credit to infrastructure contractors, which affects ease of financing, and consequently purchase of equipment. The secondary market also continues to be undeveloped due to little collaboration between the OEMs and financiers. Institutionalizing banks to fund infrastructure projects by providing low-cost and high-tenure funds could help address the financing challenge. Setting up of the National Bank for Financing Infrastructure and Development by the Government is a step in this direction.
At present, the Indian CE industry has no domestic mechanisms to encourage technology development through R&D. Secondly, the CE industry is burdened by having to comply with varied norms set by multiple government agencies. Further, there are no testing facilities that the industry can utilize to meet technology goals.
To address these challenges, India could enable indigenous technology upgradation by creating a clear technology roadmap for the sector, and by also driving technical merit in public procurement. Industry-academia partnerships must be fostered to actively focus on R&D for the industry.
Ensuring certification and mandating use of ‘Certified Operators’ by contractors and construction companies (in a graded fashion over a period of 5 years) should be considered by the Government and the regulatory authorities. Providing suitable compensation for training institutes will ensure their viability. The creation of a centralized skill pool will help to solve the challenges in demand and supply of skilled operators and mechanics.