Indian CE Industry: Current Demand & Emerging Trends

S A Faridi
S. A. Faridi
Managing Editor
The Indian Construction Equipment industry after almost three years of sluggish growth, has been witnessing a strong northward trend since January 2016. It is anticipating even greater demand ahead owing to the government’s intent on increasing development of urban infrastructure, roads and highways, and the mining sector. The PM’s office is regularly monitoring infrastructure projects, making arrangements for funds, and removing all bottlenecks. All of this, no doubt, augurs well for the CE industry, which, currently, is quite buoyant on a positive market sentiment. Industry analysts anticipate a further increase in investments and expect the CE market to touch around 85,000 units by 2020.

The change in government in 2014 was seen as a game-changer for the Indian economy, but unfortunately, positive sentiments did not translate into immediate results, even though there were enough tailwinds to keep sentiments up. The initiatives taken by the government started showing results only after 18 months. Its policies favoring infrastructure development unlocked the CE industry’s growth potential, which became evident as sales of equipment rose to over 35% during the first three quarters of 2016.

Demand Drivers

India remains a bright spot for investors, given the country’s large demographics and need for huge spending on infrastructure development, not just to meet the infra deficit but also to reignite the pace of economic growth. India’s infrastructure sector, as the second largest employer after agriculture, is a key economic driver of the country. The government’s intense focus on developing world-class infrastructure, backed by its ability to facilitate quick implementation of projects, financing and simplification of procedures for project awards and clearances, are factors that are going to drive infrastructure in the years ahead.

Schemes and projects like Sagarmala, Bharat Mala, Jal Marg Vikas, Smart Cities, AMRUT, Housing For All, expressway network, Diamond Quadrilateral for high-speed railways, dedicated freight corridors, river linkages and waterways, etc, are some of the ambitious programmes across the country that will accelerate demand for construction equipment in the coming years.

For the next two-three years, roads and highways would be the main growth drivers of construction equipment. For 2016-17, the Ministry of Roads & Highway (MoRTH) has set an ambitious target of 25,000 km of national highways to be awarded as against 10,000 km awarded during the previous year. The construction target has also been set quite optimistically at 15,000 km, against 6,000 km constructed during 2015-16.

Simultaneously, the coal sector will also see greater demand for equipment, as the government is working hard to bring transparency and investment into the sector. Coal India is gearing up to meet the one billion ton target by 2020 as set by the government. At the same time, it is encouraging to see captive coal mines also showing an inclination towards technologically superior equipment.

Railways, power, ports, and urban infrastructure will take more time to show results. Maybe by mid-2017, one can expect some upsurge in these sectors. Urban Transport and Airports have already started evincing demand for technologically advanced equipment and this trend will continue atleast for the next five years for sure. The Real Estate sector has shown negative growth over the past few years and has an inventory of over 7 lakh unsold units in top 10 cities. This will take over four years to clear, but the silver lining is the commercial sector where demand for office space by the IT/ITeS and service industry continues unabated.

After three years of negative growth, India’s CE industry which grew by 2 percent to 48,883 units in 2015, is expected to grow 27% to 62,065 units in 2016 and by 2020 it is anticipated to touch around 85,000 units.

Ground Realities

Infrastructure projects have long gestation period, and apart from planning and execution issues, legal and procedural problems may arise during the construction phase. These create uncertainty in project execution, which increases the risk for investors and lenders. Therefore, infrastructure projects are evaluated in totality, considering both financial and non-financial aspects by all stakeholders before taking the plunge.

The impact of recent demonetisation of Rs. 500 and Rs. 1,000 currency notes on the construction equipment business is still being evaluated due to very high incidence of cash transactions in construction and mining sectors. Everyone agrees that it will have an adverse impact in the short-term due to cash shortage and cleansing of accounts. Demonetisation along with introduction of GST, would bring drastic changes in business practices, leading to turmoil during the change period, but these changes would be very good for the industry in the long-term.

The simple truth is that there is a massive amount of work still to be done in the infrastructure sector, and this will call for large volumes of construction equipment. Hence, equipment manufacturers need to streamline their products, integrate new technologies, and upskill their after-sales service and maintenance teams. In fact, the way forward for them is to become a total solutions provider rather than just an equipment seller. They can also leverage in knowledge sharing and hands-on training of their high-end equipment in order to bring in higher levels of productivity and efficiency.

Growth Prospects

After three years of negative growth, India’s CE industry grew by 2 percent to 48,883 units in 2015. Seeing the volatility in the industry during the last 5-6 years, industry experts hold different views on the forecasted 2020 figures. While some are quite optimistic and believe that by 2020 the market will cross the 85,000 mark, others estimate that it will touch around 80,000 units.

The industry is anticipating a greater demand of Construction equipment in coming years owing to the government’s intent on increasing development of urban infrastructure, roads and highways, and the mining sector. The increase in demand is primarily driven by the road sector with backhoe loaders, crawler excavators, motor graders and mobile compressors rising by over 20%. Sales of compaction equipment are expected to grow by over 15%, while mobile cranes, skid-steer loaders, asphalt finishers and wheeled loaders will also rise by over 10%.

Samir Bansal, Director, Off-highway Research India, shares, “Strong domestic demand, generated by on-going infrastructure development projects, resulted in the CE market rising by 45% in 2010 and a further 22% to an all-time high of 72,197 units in 2011. With no major initiatives by the government to speed-up infrastructure development, the CE market declined eight per cent in 2012, 16% in 2013, and 14% in 2014 to a low of 47,889 units. However, the declining trend reversed and the market grew by two per cent to 48,883 units in 2015. The estimated sales of construction equipment increased by 37% to 32,350 units in the first half of 2016. Such a high growth level was not sustainable and is expected to moderate in the second half.”

Key observations on the current market scenario

The domestic market is dominated by six equipment types- backhoe loaders, crawler excavators, mobile cranes, mobile compressors, compaction equipment, and wheeled loaders. These equipment together accounted for 93-96% of total construction equipment market during 2011-2015. These would account for 94% of the market in 2016.
  • Backhoe loaders would account for 45% share and crawler excavators 24% of the total market in 2016, while the share of mobile cranes would be nine percent and mobile compressors seven percent. Compaction equipment would account for five percent and wheeled loaders four percent of the total market in 2016.
  • The share of motor graders, asphalt finishers, mini excavators and skid steer loaders would individually account for one percent of the total market, but crawler dozers and rigid dump truck sales would decline further below one percent due to a slowdown in mining equipment demand in 2016.
  • All other equipment including rough terrain lift trucks (RTLTs), crawler loaders, wheeled excavators and articulated dump trucks would continue to be sold in small numbers, although sales of RTLTs would grow in 2016.
Table. India: Sales and Forecast of Construction Equipment 2015-2020
  2015 2016* 2020* % Change
Articulated Dump Trucks -   5 10 -
Asphalt Finishers 683 750 950 +39
Backhoe Loaders 21,192 28,000 31,000 +46
Compaction Equipment 2,771 3,300 3,500 +26
Crawler Dozers 391 350 650 +66
Crawler Excavators 11,013 15,000 25,000 +127
Crawler Loaders 6 5 5 -17
Mini Excavators 583 750 1,100 +89
Mobile Compressors 3,542 4,300 5,000 +41
Mobile Cranes 4,863 5,500 6,800 +40
Motor Graders 581 850 900 +55
Motor Scrapers - - -   -
Rigid Dump Trucks 535 250 700 +31
RTLTs 103 125 200 +94
Skid-Steer Loaders 518 575 625 +21
Wheeled Excavators 5 5 5 -
Wheeled Loaders 2,097 2,300 3,200 +53
Total 48,883 62,065 79,645 +63
Annual % Change +2 +27 +7  
* Forecast
Source: Off-Highway Research
Bansal is very bullish about the future prospects of the sector and forecasts the market to grow 27% to 62,065 units in 2016. This increase in demand is primarily driven by the road sector with backhoe loaders, crawler excavators, motor graders and mobile compressors rising by over 20%.

Sales of compaction equipment are expected to grow by over 15 per cent, while mobile cranes, skid-steer loaders, asphalt finishers and wheeled loaders will also rise by over 10 per cent. However, the market for crawler dozers and rigid dump trucks is expected to decline in 2016 mainly on account of low power off-take by distribution companies leading to build-up of coal stockpiles.

The growth will moderate to 11 per cent in 2017 and further to 10 per cent in 2018 with sales of 75,595 units. Due to the general elections scheduled in 2019, demand is expected to decline marginally to 74,495 units, but is predicted to grow seven per cent to 79,645 units in 2020.

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. Importantly, demand for equipment that has sold only in small numbers in the past, such as mini excavators and rough terrain lift trucks, would also increase considerably.

Upgrading Technology

Interestingly, mechanization in India’s infrastructure construction sector is entering its second phase. In recent years, there has been tremendous modernization in the infra construction equipment, with most OEMs launching technologically advanced and energy efficient equipment at regular intervals. Their objective is to enhance productivity, reduce downtime, bring in cost competitiveness, have less reliance on imports, manage a better inventory of spares, and so on. From basic equipment, demand is shifting towards equipment that has the latest technology, as users have to deal with tighter project schedules, accountability in meeting quality parameters, and need to ensure greater safety. What’s more, the end-users are willing to pay more for safety, reliability, and higher productivity that the latest equipment would bring.

Mechanization in India’s infrastructure construction sector is entering its second phase. From basic equipment, the demand is shifting towards equipment that has the advanced technology, reliability, safety, and ensure higher productivity and uptime to deal with tighter project deadlines. Automation and intelligent systems are other technological trends being integrated into the equipment.

An interesting outcome of this trend is the evolving small and medium contractors who are rapidly becoming main contractors. They are bidding for projects and are going for the latest equipment in order to meet their project timelines, and also because the more technologically advanced equipment cause less wear and tear, and have low operating cost and downtime.

Automation and intelligent systems are other technological solutions being integrated into the equipment. Periodic and predictive maintenance alerts not only help in minimizing downtime and operational cost, but they enable the owner to keep an eye on his machine through his smartphone. He is alerted on the machine’s location, in case of any unauthorized use, theft of fuel or machine part, which is quite common at project sites.

Research and development has become another important area for equipment manufacturers. Contractors are also focusing on ‘total cost of ownership’ rather than initial purchase pricing. So manufacturers get continuous feedback from their customers, based on which, they come up with newer solutions to stay ahead of competition.

As a massive amount of work is yet to be done in the infrastructure sector which will call for large volumes of construction equipment. Hence, the way forward for equipment manufacturers is to streamline their products, leverage in knowledge sharing and hands-on training of their high-end equipment and become a total solutions provider rather than just an equipment seller.

Business Platform for Industry

The stage is set for bauma Conexpo India, one of the largest trade fairs for construction machinery, building material machines, mining machines, and construction vehicles. All the these and other latest technological trends and new product launches can be seen during this show (to be held in Gurgaon, New Delhi, from 12–15 December 2016). This mega event will have over 700 exhibitors who will display their state-of-the-art equipment over an area of 1,50,000 sqm, and it will be visited by over 30,000 visitors over five days.

According to the organizer bauma Conexpo Expo, the 2016 edition will see an increase in the number of international pavilions. The Demonstration Area will be a new concept at the show. Here, exhibitors will be able to showcase their latest machines and technology. Accompanying programs will include seminars, panel discussions and awards. A conference on ‘Infrastructure Equipment- Re-scripting the Growth Story’ is being organized by iCEMA on December 13, 2016.

Big players that have already registered include JCB, Potain, ACE, Ajax Fiori, Ammann Apollo, ASTEC, BAUER, BKT, Caterpillar, Columbia Machines, Haulotte, Herrenknecht, Kobelco, KYB Conmat, Liebherr, Liugong, Macons, MAN, Masa, Peri, Puzzolana, Sany, Topwerk, Wacker Neuson, Volvo,Wirtgen, amongst many others. This edition of the tradeshow will be a reflection of the scale and magnitude seen in baumaConexpo Expo’s international tradeshows on the global Construction Industry.

Indian CE Industry

NBM&CW December 2016

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