Indian Construction Equipment Sector - Seeing Unprecedented Growth & Intelligentization

S.A.Faridi

The Indian equipment sector is undergoing sweeping changes not just in terms of higher demand amid the government’s resolve to build world-class infrastructure, but also due to the digitalization and intelligentization of manufacturing for rolling out highly advanced equipment.

Overview

Irrigation
The Indian economy has been growing at a rate of 7.5 percent for the past four years, placing it amongst the highest in the world. Government’s efforts to make India a top investment destination has been affirmed by the World Bank’s ‘ease of doing business’ survey across 190 countries, which ranked India to 77th position from 137th three years ago. Liberalization in FDI policy has also helped India attract a whopping $105 billion of foreign investment during fiscal years 2016-17 and 2017-18.

Despite the risks and challenges, the government has given top priority to infrastructure development, which has led to rising sales of equipment, especially earthmoving, road building, material handling, air compressors, concrete manufacturing, transporting and placing equipment, crushing & screening, among others, with sales set to cross 1,10,000 units in 2018.

According to Off-Highway Research, the projected sales of construction equipment (earthmoving, road construction, and material handling) in the first half of 2018, is estimated to have increased by 33% as compared to the corresponding period in 2017. Surge in demand was due to increased activity in the construction and mining sectors, and the momentum of growth following GST in November 2017. Easy availability of finance, positive market sentiments, and equipment replacement, are other factors that have helped the industry to grow at a rapid pace.

However, the sales may moderate due to fast approaching general elections in mid-2019. Despite the concern, 2018 is seeing a robust growth of 27%.

In view of the projected growth and government’s ‘Make in India’ initiative, most OEMs are upgrading their manufacturing facilities in an intelligent and innovative way by using automation, robotic, and advanced technologies and producing high-tech machines that meet global quality standards. They are also regularly adding new features to their product lines and expanding their portfolios to become complete solution providers. This new wave of intelligent manufacturing supported by Internet of Things and technical innovativeness can be termed ‘Intelligent New-Generation Infrastructure Equipment, towards which India is moving fast.

Interestingly, it’s not just the growth momentum that the Indian equipment sector is witnessing, but also a positive approach among buyers who are responding well to the innovative equipment, machinery, and solutions, being offered by manufacturers.

Indian Construction Equipment Sector - Seeing Unprecedented Growth & Intelligentization

Opportunities & issues

India’s economy is recording a robust growth and to sustain the momentum, the country must build world-class infrastructure. The government has introduced many new and innovative models like hybrid annuity, toll, operate & transfer, and ‘ease of exit’ policy for developers. It is striving to strengthen the PPP framework (which is the most important model for fast tracking building infrastructure) and is finding solutions for hurdles in land acquisition and environment clearances.

Other structural reforms like the insolvency law, recapitalization of the banking sector, and non-performing asset management are also helping the infra sector to keep up the healthy pace of growth. The government is inviting investment through infrastructure bonds and private funding will also improve with reforms such as ease of doing business and improved balance sheets of contractors.

These initiatives have revitalized the road sector and have proved successful in increasing the pace of project execution and delivery during the past few years and reduced the risks of project developers. More than 125 projects have been awarded under HAM and MoRTH has awarded over 50,000 km of roads under various programs in the last four years, which is a commendable performance. As of now, we are building highways at a pace of 27 km per day, which is the fastest pace since Independence.

The government’s ambitious Bharatmala and Sagarmala projects, when implemented as per plans, will resolve many issues of connectivity by bridging a critical infrastructure gap. The industrial areas development, with these two projects, will enhance economic growth by enabling increased commercial activities in tourism, visits to religious places tours, and trade routes to neighbouring countries. Under Bharatmala Phase1, about 34,000 km of roads have been planned, and under Sagarmala 7,500 km of coastal lines, along which, over 600 projects have been identified for development.

The government also came up with the ambitious Smart City Mission, Swachh Bharat Mission, the Atal Mission for Rejuvenation of Urban Transformation, and Housing for All scheme, with a massive investment target of over `6 trillion. Unfortunately, most of these missions are in their early stage of implementation due to scarcity of financing resources.

One of the most significant developments in urban areas is the fast-paced construction of the metro rail. In over 23 cities, about 630 km of the metro rail network is at different stages of construction & implementation and over 700 km in the planning stage.

Sectors like the railways, aviation, power, and ports require the government’s intervention in resolving several issues, expeditiously. Though the Indian Railways has planned to invest over USD 125 billion by 2030, it needs a multi-pronged approach to address the issues of funds, utilization of its huge land bank, bringing greater efficiencies in its operating systems, and involvement of the private sector, especially in the modernization of railway stations, setting up and managing private freight corridors, high-speed rail corridors, locomotive and coach manufacturing, etc.

Similarly, for the Aviation Sector, the government has earmarked a huge investment and is trying to introduce the PPP model under various schemes. With over 100 million passengers travelling annually, most airports have started enhancing their passengers handling capacity, and as reported, over 20 airports have been identified for capacity addition and 35 non-metro airports and many greenfield airports are in the planning stage.

The Power Sector continues to be riddled with many issues despite the government’s proposed amendment to the Electricity Act, a tariff policy for power distribution, besides UDAY and IPDS. More coal and hydro power plants need to be set up and the two sectors need immediate attention by the government as the private sector is not coming forward with funds due to the long gestation periods of the plants and lack of clarity in government’s policies.

Table 1: India: Sales and Forecast of Construction Equipment, 2017-2022*
(Units)
  2017 2018* 2022* % Change
2017-2022*
Articulated Dump Trucks 2 5 5 +150
Asphalt Finishers 893 950 1,050 +18
Backhoe Loaders 32,728 45,000 45,000 +37
Compaction Equipment 4,765 5,500 5,000 +5
Crawler Dozers 534 450 600 +12
Crawler Excavators 20,062 24,000 34,000 +69
Crawler Loaders 3 5 5 +67
Mini Excavators 1,021 1,200 2,000 +96
Mobile Compressors 5,108 5,200 5,500 +8
Mobile Cranes 7,749 11,000 11,000 +42
Motor Graders 1,081 1,300 1,500 +39
Rigid Dump Trucks 406 400 550 +35
RTLTs 175 200 350 +100
Skid-Steer Loaders 799 600 750 -6
Wheeled Excavators 2 5 5 +150
Wheeled Loaders 2,781 3,300 3,500 +26
Total 78,109 99,115 110,815 +42
Annual % Change +17 +18 +6  
*Forecast
Source: Off-Highway Research

Chart 1: India: Sales and Forecast of Construction Equipment, 2017-2022

Apart from the conventional infrastructure projects, the government is also trying to develop new segments such as affordable housing, micro irrigation, solid waste management, sports complexes, exhibition and cultural centres, which indicates the government’s serious intent for infra building across sectors.

However, delay in the implementation of core infra sector projects is a cause for concern. Key issues such as land acquisition, poor project planning and lack of sustained DPR, and the private investors’ apprehensions on the bankability of the projects, need to be resolved quickly by the ministries concerned to bring back private investment, without which, it will be difficult for the government to build world-class infrastructure.

CE Industry - Fast forward to 2022

The rising income levels and economic prosperity will require huge investment over the next 25 years to build matching infrastructure. India requires around $4.5 trillion Infra investment by 2040 to meet its development requirements. However, current trends indicate that the country will be able to meet its requirement of around $3.9 trillion (short of $526 billion) by 2040.

In the current infra development scenario, the Roads & Highways sector will remain the main growth driver for the CE industry, followed by Railways & Metros, Irrigation, and Ports. Big-ticket projects like Smart Cities, Bharatmala, Sagarmala Programme for modernisation of ports, increasing connectivity and port linked industrial hubs, Airport development and upgradation, Jal Marg Vikas, AMRUT, Housing for All, and Diamond Quadrilateral for high-speed railways, river linkages and bullet trains are set to drive demand for equipment.

Off-Highway Research forecasts that the CE market will follow an upward trend in the next five years, though, it will see a dip in 2019 due to the general elections. The slowdown will be felt across infra sectors that are seeing ongoing construction work since 2016, and will result in laying off equipment as projects get stalled, leading rising inventory levels. However, this will be temporary phase and post elections the industry will once again pick up steam.

Informs Sameer Bansal, Director, Off-Highway Research India, “CE industries such as Indian earthmoving, road construction, and material handling equipment saw 36% growth in 2016, and a further 17% rise in 2017 with a new peak of 78,109 units. These industries are set to witness a robust growth of 27% by this year-end with 99,115 units.” (If equipment for concrete manufacturing, transporting and placing, and crushing & screening plants, will be added, it will take the numbers to 110,000 units in 2018.)

He adds, “Demand is expected to decline 10 percent to 89,065 units in 2019, but sales will increase by 8 percent during 2020 and 2021, and by 6 percent in 2022, to peak at 110,815 units.”

Almost all types of equipment will witness growth though the market will continue to be dominated by the six most popular products: backhoe loaders, crawler excavators, mobile cranes, mobile compressors, compaction equipment, and wheeled loaders. These will account for 94% of the CE market share by 2022, while backhoe loaders alone will represent 41%, and excavators 31%.

According to Bansal, the forecast assumes that the current government will return to power in 2019, however, a change in the government or its structure could have an adverse impact on the industry.

Intelligent manufacturing

TM 400
India has come a long way since it started mechanization: from the earlier low-capacity, low-priced machines, the CE market has shifted to technically advanced machines that gives value-for-money to their buyers. In the past 2-3 years, with tighter completion schedules of projects along with a bonus clause for early completion, equipment buyers are opting for high-tech machines, seeing their financial viability with higher productivity, reliability and safety. No doubt, it’s still a value-for money market and will remain so, but seeing the kind of improvisations and value additions being made in the equipment and in their manufacturing, it is clear that India’s CE industry is at par with global standards.

NBM&CW has interacted with many contractors in the past few months and concluded that their criteria for selecting a machine is based on its ease of operation, fuel efficiency, uptime, and quick after-sales service and support by the manufacturers.

Indian OEMs are aware that contractors are now travelling all over the world and seeing world-class manufacturing facilities. To meet their expectations, they have begun to upgrade their manufacturing processes to produce superior products based on the latest technologies that are revolutionizing the CE industry. Lean manufacturing and world-class automatic processes including robotic systems for welding, CNC cutting, sand blasting and painting, together with stringent quality control parameters, are becoming a norm across all CE manufacturing segments.

In fact, the industry is making a transition to a more innovative industry by moving to intelligent systems driven by IoT and data analysis for networking, service and sustainability. OEMs are using advanced control systems in operator cabins, and the best aggregates/components to make machines that are highly productive, energy and fuel-efficient and low on maintenance.

The advent of artificial intelligence is enabling specialized technological solutions to help improve user experience. Technical interventions and upgrades in India’s CE industry have opened up new business vistas, with many multinational equipment manufacturers making India their export hub, and many Indian manufacturers exporting their products to world markets. About 20% of the sector’s revenue is coming from export of products such as crushers, screens, earthmovers, asphalt/concrete batching plants, air compressors, road construction equipment, and cranes.

CE Rental Business

Unlike developed countries like US, Japan, China etc, the Rental Equipment market of India is still in its nascent stage. Since India is projected to be amongst the top countries for infrastructure development, there will be ample opportunities for growth, provided the CE Rental companies and the CE Manufacturers work in tandem and jointly address the issues that the rental industry is confronting.

Bodies such as Construction Equipment Rental Association (CERA) and the Crane Rental Association, are trying to bring transparency and reliability into the rental segment by resolving long-standing issues, bringing more business opportunities, and building faith amongst the hirers.

With the help of such bodies, the rental market is moving towards standardization of business practices, guidelines, operating procedures, tariffs / hiring rates, payment recovery, trainings for operators, warehouse sharing prices, etc. With these positive trends, there is a gradual transformation of the rental industry, but it still has a long way to go before it comes to be recognized as a dependable, organized industry.

motor 865 B

bauma CONEXPO INDIA 2018: A must visit business platform

For those involved, directly or indirectly, in the infrastructure and construction sector, the upcoming bauma CONEXPO INDIA 2018 is an apt opportunity and a must-visit exhibition, where leading OEMs and Spare Parts manufacturers will showcase their technologically-advanced equipment and components and launch new products. It is also the platform to meet prospective clients, interact with existing customers, attend conferences by industry experts, and meet the who’s-who of the CE sector.

Another talking points in this year’s show will be the IoT (Internet of Things), which is driving telematics and diagnostics for tracking, maintaining and servicing equipment; Artificial intelligence, automation; productivity and total cost of ownership.

Buyers and Sellers meets are being organised for the first time at this year’s event to initiate pre-arranged meetings with focused objectives and with serious players. There will be several conferences on themes such as ‘Latest Technologies & Financing’ by iCEMA; ‘Transformational Infrastructure’, and half-day sessions by BAI and CERA.

As a major build-up to the upcoming event, NBM&CW interacted with over 100 participants to elicit information about their future business strategies, manufacturing capacities and new product developments. What emerged is that most manufacturers, in the last one year, have seriously undertaken R&D for developing or upgrading their products to enhance productivity, bring more fuel efficiency, and better operator experience with electronic controls, all-round visibility, and comfort. They are also charting out strategies to become total, integrated service providers by catering to each and every need of their customers.

Book your tickets to the mega event without delay if you want to see new products and innovations and be a part of the most exciting week of the CE industry during 11-14 December 2018.

NBM&CW December 2018

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