Construction Equipment: Demand Getting Critically Indexed to Project Needs

Construction Equipment Forecast

Contractors have started showing renewed interest towards new equipment acquisitions after closely judging requirements. P.P.Basistha takes a stock of the emerging demand pattern.

The new government's resolve to fast track infrastructure development has begun rekindling contractors' interest for acquisition of new plants and machineries. Receding status of the order books, tardy release of payments, rising interest rates for project execution and equipment acquisition made contractors shelve decisions for acquisition of new units for good number of recent years. However, banking on the resolve of the government to pull out the infrastructure out of slumber, contractors are now quite keen towards buying new units. Nonetheless, the big rider is that the decision to procure new units will be firmly indexed by absolute correlation with the ongoing job requirements or the new projects they bag, at least in the mid-term.

Slower project announcements and extended payment cycles, resultantly depleted to a major extent the contractors' reserves. This was followed by serious debt restructuring, disinvestment of equity, and outright distressed sale of assets by construction firms and project developers to generate cash for remaining in business. With the hard cash, contractors could manage to earn, the strategy is now towards resource optimization by selective acquisition of equipment only to meet the needed requirements as of now. This is in strong contrast with the situation prior to 2010, when equipment bank of the contractors swelled, as projects in plethora ensured their off take and resale.

Cat424B Backhoe Loader

Contractors are now waiting for the comfort period to appear for their reserves kitty to be stronger allowing them for enhanced purchases. This will be only possible with job volumes getting increased and bidding receding, allowing contractors to earn decent margins. According to the estimates of the equipment buyers, the span is likely to get extended till the end of the year that is when demand will attain traction.

According to Mr. A.P.S. Chadha, Senior Director, C&C Constructions Ltd, "we are closely monitoring the cycle of payments in road projects by the concessionaire and the project developers, following which we will take a call on further acquisition of equipment. As of now, we are adequately placed with our equipment fleet to meet our ongoing project requirements." C&C which has got maximum exposure in road construction projects is presently executing three BoT projects and five Asian Development Bank funded projects in Bihar. It is also executing a major World Bank funded road project in Himachal Pradesh.

While newer equipment acquisition may not be an outright decision road construction major C&C is willing to take, however, it is not agreeing to sit on its old inventory for a prolonged period either. Working towards resource optimization, C&C is also not willing to incur additional expenses towards maintaining the older inventories if they are beyond economic repairs. "We are quite firm towards retention of the equipment if only they are within the ambit of economical repairs and can deliver the desired quality output," notes Mr. Chaddha. C&C has an equipment bank close to Rs.400 crores. The company recently participated in a major trade enquiry for acquisition of new asphalt batching plants.

Tata Prima Construction Equipment

Sitting on older fleet that is costlier to operate is also not under consideration by Gujarat based construction major, Dinesh Chandra Agarwal Infracon. The company has recently completed construction of major flyover project at Dabri mode in New Delhi, close to airport. According to Mr. Jagdish Agarwal, ED, Dinesh Infracon, "We are going for major acquisition of asphalt hot mix plant, compactors, pavers, pneumatic tire rollers, concrete batching plants, and transit mixers." Though, not disclosed whether the fresh buys are in replacement of the older fleet, Mr. Agarwal mentioned, "We fully ensure that the equipment get optimally utilized and we are able to comfortably meet our bank payment obligations." As a reason he pointed out, "At present, we are looking to participate in government owned /funded projects where payment part is relatively comfortable as compared to the private concessionaire."

However, agreeing to the fact that, payment cycles are extended in government projects but altogether not delayed for an indefinite period Mr. Agarwal mentioned, "Taking note of the same, we are looking for refurbishment of the equipment, in major cases through fitment of remanufactured parts to have the desired output from the machinery." Dinesh Chandra Infracon has a fleet of over 200 equipment at its disposal. The company is executing major road connectivity projects of NHAI in West Bengal involving Kharagpur-Kolaghat project, road projects in Balasore, Odisha, and major flyover project in Surat.

Major acquisition of road equipment is also planned by South Indian construction firm, Sushee Infra which has recently acquired a brand new 124 tonne per hour asphalt batching plant and couple of Volvo FMX tipper trucks. According to Mr. T. Reddy, Senior Manager Purchase, Sushee Infra, "We are looking forward towards procurement of tandem rollers, soil compactors, pavers and pneumatic tire rollers. The fresh set of equipment is being acquired in place of the recently scrapped machineries. We are also looking to take equipment on hire for mining and irrigation projects." Sushee has got exposure in construction of roads, irrigation projects and tunneling. The company is working on Trans Arunachal Pradesh road project that will connect larger parts of Assam in North East.

Getting diversified from its earlier mainstay business of piling, known by its erstwhile name, Simplex Piles, the Kolkata based company is diversifying its equipment portfolio to get branded with its new name, Simplex Infrastructure. According to Mr. Manash Ghosh, Chief Manager, Purchase, Simplex Infrastructure, "To meet the construction requirements of new diversified areas, precisely in real estate construction projects, we are acquiring flat top and hammer head tower cranes within the capacity range of 6-10 tons, along with other supporting equipment for real estate construction, involving mast climbers concrete boom pumps. However, the newer equipment are only procured based on specific project requirements, which we may not be able to meet from our equipment bank worth over Rs.1000 crores."

Liugong Wheel Loader

Focus on Optimization

While companies are looking forward for fresh acquisitions based on project requirements, however, a major part of the focus is towards optimization of usage to neutralize the extended payment cycles.

Gammon India is utilizing sizeable segments of its old equipment. Those have worked at numerous sites. This ranges from backhoe loaders, transit mixers, and excavators to piling rigs. The company has deployed sizeable segments of its equipment for time bound, major cable stayed Signature Bridge work in Delhi. An AK 380 Gottwald, 4 axle, 350 tons and an AK 150 Gottwald (1973 built), 100 tons mobile truck mounted lattice boom cranes are erecting precast concrete sections. The AK150 has earlier worked at Delhi Metro's second phase project and other sites as well.

Two 100 tons and one 20 tons, rail mounted gantry cranes from Anupam Industries are working at the approaches for lifting of precast concrete sections. Gammon is also using a fully reconditioned, 18 ton Tata, crawler crane.

Mr. Shubhendu Bose, DGM (Projects) Gammon India says, "For most of our projects including the Signature Bridge, we are looking to buy equipment only to meet specific project site requirements. We have recently placed order for a new rail mounted, gantry crane with 40 meters span and 60 tons lifting capacity to industrial crane manufacturer, Electromech Industries. The crane will be lifting 30 tons precast concrete sections for the approaches connecting the main bridge on the river which cannot be accessed by the heavy crawler crane."

Lifting Equipments
GR Infra Projects Limited has recently acquired 14-15 used machines from Somdatt Builders. The equipment will be used by the company for some of its site in India as well as projects in Africa and Mauritius. According to Mr. R.L. Kashyap, VP, Procurement, GR Infra Projects, "With banks and financial institutions reducing their exposure to finance infrastructure projects and equipment coupled with cash contraction from the concessionaire, we are looking for optimum utilization of our present fleet, making purchases based on specific site and job requirements. We have our own dedicated mechanical wing that undertakes constant engineering audits of the equipment, so as to evaluate their ability to perform. That is how we have been able to reduce downtime of the equipment. We do not keep the machines idle but keep on shifting them between various sites." GR Infra Projects is executing NHAI projects in Rajasthan and is also involved in construction of runway for Jodhpur airport. The company possess a fleet equipment of close to Rs.450 crores.

Equipment will be retained by piling construction major D. Thakkar Constructions. According to Mr. Vishal Thakkar, Director, "We are focusing more towards in-house turnkey piling jobs, so as to ensure utilization of our cost intensive rigs commercially viable. The strategy has enabled us to hedge idling of 30% of our piling rigs at present." Thakkar Construction is the piling contractor for Jaipur Metro project. The firm has also sizeable jobs under Delhi Metro Railway. It is also involved in piling job of coal jetty for Vizag Port.

Emerging Business

Construction Equipment

The emerging trend of optimum equipment utilization thereby restricting fresh purchases only to be taken for specific site and contract requirements may keep volumes demand subdued for OEMs. However, it is opening up new business vistas, although characterized by tough business challenges, much at par with developed markets. The challenge is understanding the ever emerging complex job requirements of the contractors in the country across the equipment verticals and thereby developing products and reorientation of products and services support accordingly. This may not be feasible with mere equipment offering, but by critical knowledge expertise of the OEMs calling for closer engagement with the customers. This is because contractors or yesteryears equipment owners are increasingly looking for backward integration by developing expertise to neutralize business risks from the ever getting cyclic Indian construction sector. Much notable instance being cranes and material handling and piling or even earthwork. Engagement with contractors is increasingly becoming vital as business structure of contractors in India has continued to become complex over the recent years, right from the project awarding stage that may get stretched due to delayed land acquisition, delay in laying of access points to the job site or arbitration. Additionally, during project execution, complexities in execution may require the contractor bring in added mechanization for faster completion of the job. Further, requirement to meet desired specification of the concessionaire may also need added mechanization, thereby requiring higher cash flow again than that of the estimated amount. These are rapidly emerging typical situations in India, which usually surpasses the levels of committed cash required for the projects. Though it may seem at first glance, the more job volume, the more business profitability, however, the looming rider remains. The more number of jobs, the more requirements of cash supply. Further, the more complexity greater the requirement of finance availability. Requisite product placement backed by necessary support based on customer engagement can help to minimize the cash requirement needed for mechanization. With contractors increasingly looking for optimum utilization of the plant and machineries, cost effective Reman and refurbishment is also key.

NBMCW February 2015

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