Mr. Prabhat Tiwari, Head Marketing and Key Accounts, Hyundai Construction Equipment India Pvt. Ltd.
The Government is strongly committed to infrastructure development—what are your projections for the CE market in short and medium terms and what propels the market in India – price, quality or brand?
According to industry experts, in the current five year plan till 2012, around Rs.22.73 trillion is being invested in the expansion of the road and rail network, construction of new sea ports, airports and in improving energy and water supplies.
Based on this affirmative investment plan, the CE industry would be looking at equipments that speed up completion of work in quick time and add value for money to customers. Brand and Price are two important factors that are considered by customers before making a decision. In the infrastructure development segment, Hyundai offers 20 tonne excavators that have multiple adaptability with excellent quality and competitive price. Hyundai service promise ensures customers are attended to all the time, maximizing uptime and reducing downtime.
Shortfall of skilled and trained equipment operators and mechanics is a big issue for several years now. What enabling efforts required at government and manufacturers level to overcome this problem?
Simultaneously, Government needs to support the efforts of industry players through three growth enabling initiatives: 1) Increase the availability of trained manpower 2) Lower the tax burden and remove current tax anomalies that encourage imports 3) Introduce policy measures (i.e. encourage domestic value addition through mandatory 30% level of indigenization, set up an industry focused R&D institute) to strengthen industry capabilities. Raw material cost could also emerge as a significant challenge. In this context, global players with presence across various countries could be at an advantage if the cost dynamics were to shift in favor of some other country.
How much is the shortage of skilled hands a problem for you and how do you plan to overcome with them?
So far we have been able to attract talent from Industry. We started our training centre prior to commencing commercial production. We have highly skilled trainers both for service personnel and machine operators. We are running various training programme to increase efficiency.
In developed countries, the share of equipment sold to rental companies is over 50%, whereas in India it is below 10%, what are the key issues for rental business not taking off in India and where do you see rental business in the next couple of years? What enabling business environment needs to be created for its future growth?
Equipment rental business is currently pegged at 7 to 8 per cent of the total construction equipment industry. The developed markets have rental penetration between 50 to 80% of the total construction equipment sold in their domain. India is still at 7 to 8 per cent rental penetration and we are looking at the industry growing to the 15 to 20% in next couple of years. The more the rental penet- ration, the more tilt towards rental.
The medium term outlook for construction equipment rental is healthy and robust, especially from the roads, power and ports sectors.
Interstate transactions for equipment and virtual are both an unwanted stress and challenge to any services company.
Used equipment trends is also picking up in India, and few auction companies are making in roads here, is this a threat or an opportunity to the manufacturers?
While there is good potential for used equipment in India, the market size of which is estimated at about three times the primary market, India does not have an established common platform for trading in used equipment. Again, the current rental penetration in India at around 7 to 8% remains low as compared to the global standards of 50 to 80%. An average of 30% of the equipments sold in Europe and over 60% in the United Kingdom are to rental operators. A robust rental market enables reduction in investments in projects by outsourcing the equipment requirement (including spares and services) and improving capacity utilisation of equipment. The key equipment in the rental fleet in India currently are backhoe loaders, pick and carry (PNC) cranes, excavators, motor graders, and vibratory compactors.
While a number of organised equipment banks have entered into the fray with large fleets (of over 100 equipments), the market continues to be serviced mainly by small fleet owners with less than 10 equipment each. However, there are various structural/ operational concerns that need to be resolved for the Indian equipment rental markets to evolve. Concerns include lack of synchronisation of inter state tax policies (on movement of equipment between states) and logistics of the equipment. Further, the dominance of unorganised market participants that operate on cash transactions (on rentals, thereby avoiding taxes and enjoying an unfair advantage to the larger rental operators) prevents the evolution of a more organized system.
What are the critical policies issues plaguing the CE industry in India that need to be addressed on a priority basis? Also how do you propose to tackle them at the macro as well as micro level for the balanced growth of construction equipment industry?
CE industry is facing acute shortage of industry specific trained manpower. This issue requires government support in terms of policy initiative supporting academics for the purpose. Complexities in interstate transaction and disparity of taxes are one of bottleneck for seamless transaction between states. One of the area which is highly untapped in our industry is leasing of equipment, which otherwise will give boost to business and also will generate mass employment in the industry. Clarity in policies and incentive for this sector is highly called for to give much required boost to this sector. Income Tax norms wrt capital assets need to be more user-friendly to encourage buying.
However, we are doing all possible from our end to overcome with these hurdles through our innovative marketing schemes benefiting customers, a push in above areas are required as policy measure from Government too.