Last year, we took an aggressive approach with the launching of new products in spite of the recession. The objective was to be prepared and match customer expectations and take a chunk of market share when the economy turns around, says R Nandagopal, Chief Executive Officer, Construction Equipment Business, Greaves Cotton. Excerpts of the interview.
How do you assess the performance of road construction equipment in the last two years?
The construction industry on a whole has been in the grip of a severe slowdown. Road construction is a key segment that drives both road construction and concrete equipment. The last two to three years have seen very low levels of activity in new road projects and hence, have had a profound impact on constrution equipment (CE) as a whole and on compaction and concrete specifically. The road sector has witnessed several constraints and financial stress last due to the economic slowdown, failing GDP growth, high interest rates and more critically in land acquisition and infrastructure funding.
Obviously, at Greaves Construction Equipment, we have not been immune to the above developments. The past couple of years have been challenging and our volumes were affected but we have managed to maintain our market share in our road and concrete equipment.
As far as NHAI projects are concerned, what are the major areas of concern?
In 2013, the NHAI projects which were awarded fell way short of the initial target which was decided by the government due to a variety of reasons including land-related issues, cost of credit, inflated revenues due to wrong traffic estimates for toll earnings, etc. NHAI was initially focussing on funding through PPP models in order to attract more private players but these have failed to attract investors, due to which a major chunk of projects were stalled.
To gain back the confidence of the investors, the NHAI and the road ministry have been seeking some policy changes from the government. These are:
Any recent positive moves initiated by the government for fast-tracking NHAI projects?
NHAI is set to award projects under engineering, procurement and construction (EPC) as the risk factor is substantially reduced and many regional players shy away from BOT projects.
The government has given its clearance for many highway projects across India this year. Additionally, NAHI has come up with a back-up plan for over 23 stranded highway projects where the initial contracts will be cancelled and the projects would be bid out afresh in smaller stretches as the response from investors to develop smaller stretched seems better.
There has already been a slight upturn with the demand for road products as the market is expecting a full economic recovery this year.
The government has been trying to set up an infrastructure fund to provide concessional funding, fair compensation for land acquisition to smoothen the process, and more public funded roads.
How do you assess the growth potential of the road sector, especially in the North-eastern (NE) states?
The government has been working to expand the rail, road and air connectivity in the NE states which have poor connectivity as compared to the rest of India. Infrastructural development is vital for the strong socio-economic development of the region and its integration to the rest of the country. The Ministry of Road Transport and Highways (MORTH) has taken up the Special Accelerated Road Development Programme (SARDP-NE) for the development of a road network in the NE states of the country. The project is in the implementation phase and the target time for completion has been set as June 2016. The objective is to provide road connectivity to all the district headquarters, backward and remote areas of the North-east. This project, if completed successfully on time, will be a major boost for the long awaited infrastructure advancement in these states.
State highways and rural road sector seem to have some movement. Has this started reflecting in the road equipment sales?
In order to widen the national highway network, some of the state roads have been under the scanner to be converted to national highways. A number of companies, as part of their corporate social network, are also initiating projects for improving the road connectivity in rural areas. The sales in road equipment have improved over the past few months but the significance of this can only be measured when this improvement continues for a longer duration. Only time will tell.
What is the current demand-supply for compactors for NHAI projects?
According to ICEMA data, the number of compactors being sold in the last couple of months range around more than 200 machines. This actually represents a recovery considering that in the previous quarters the number was less than 125 machines. Currently, the supply capabilities are much higher than the demand for the compactors and as such there needs to be no concerns on demand-supply gaps.
What are the technology trends in the compaction equipment?
Presently, we have the complete range of variants of compaction equipment for various road-building applications which is required for NHAI, PMGSY, etc. Our compaction equipment include vibratory soil compactors (both drum and non-drum variants), heavy and light tandem rollers, which satisfy the needs of the Indian market.
All our machines are equipped with top technology, carefully designed lubrication joints ensuring minimal friction giving optimum performance with minimum maintenance. The focus has been to provide easier maintainability, operator comfort and fuel efficiency, thus saving our customer cost. Keeping this in mind, we are migrating from air-cooled engines to water-cooled engines in our compaction equipment.
Effectiveness of compaction depends upon several factors including operating frequency, amplitude of vibration displacement, static linear load and speed of travel. Our compactors optimise all these factors to provide efficient compaction with minimum number of passes, thus increasing fuel efficiency. We have the technology for building 19T roller which we would do so if the demand rises for the same in the future.
What is the scope for concrete equipment from the road sector?
A lot of concrete equipment are used in the building of highways, flyovers and bridges. The foundation for building massive bridges and flyovers might need the entire range of concrete equipment, from transit mixers, batching plants to boom pumps.
What are your views on the growth potential for the road equipment segment?
According to RBI, the forecast for the growth in real GDP in the next five years is 7.5 per cent and for the next ten years the GDP is forecast to grow by 8 per cent. Considering that infrastructure development is a direct result of GDP growth, by 2017, the growth of road equipment segment will be around 15 per cent and may increase to 20 per cent by 2020.
Will there be any more investment or new launches in 2014?
Last year, we took an aggressive approach with the launching of new products in spite of the recession. The objective was to be prepared and match customer expectations and take a chunk of market share when the economy turns around. Keeping this in mind, we launched a series of S valve concrete pumps, low capacity batching plants and the Greaves´first boom pump. Currently these machines are being tested in the market and are doing well. This year, we will continue to focus on the progress of these newly launched products in the market and continue to upgrade them whenever necessary.