In view of the infrastructure development needs in every sector and the government's massive and investment plans, Off-Highway Research forecasts the Indian construction equipment market will grow to over 100,000 units by 2017, say Samir Bansal, General Manager, India, Off-Highway Research. Excerpts from the interview.
What is the impact of the economic slowdown on the earthmoving equipment industry?
The earthmoving equipment industry is driven by the infrastructure development and mining activity in the country, which in turn depends largely on the government plans and investments in to the sector. During the economic slowdown, the government's revenues are adversely impacted leading to a cut back/delay in investments in to the infrastructure sector that result in a downturn in the demand of earthmoving equipment. Further, the slowdown also has a negative effect on the business/investment sentiment, which leads to postponement of equipment purchase decisions.
What are the major challenges the industry faces?
The major challenges faced by the industry are the delays in the government's policy decisions relating to land acquisition, procedural and approval delays, especially for environment and forest clearances, and issues related to long term financing needs for infrastructure projects. The general elections scheduled for early 2014 makes the situation even more complex.
The monetary policies being followed by the government to control inflation have unfavourably affected the economic growth and increased the cost of borrowing for purchase of construction equipment. The continuous depreciation of Rupee is increasing the cost of imported machines and input cost for the local manufacturers.
Is there over-capacity being created for earthmoving equipment?
Manufacturing capacity is created to meet the long-term demand of the market. Reviewing the past trends, the total construction equipment industry which was only 12,982 units in 2003, expanded to 50,656 units in 2007, and 72,164 units in 2011. Sales could not be sustained at this level in 2012, and declined by eight per cent to 66,170 units. However, in view of the infrastructure development needs in every sector and the government's massive and investment plans, Off-Highway Research forecasts the Indian construction equipment market to grow to over 100,000 units by 2017. Further, India is also developing as an attractive manufacturing base for export of construction equipment, which also supports capacity creation.
In view of the above, I do not feel that over capacity has been created for construction equipment in the country, despite the current temporary slowdown.
What is the scene regarding demand-supply scenario of earthmoving equipment?
Off-Highway Research believes that amongst high volume products, crawler excavators will be the fastest growing product type and its demand should grow to over 30,000 units in the next five years from 13,914 units in 2012. Backhoe loaders would continue to be the most popular construction equipment in the country; however, it would grow at a much lower rate compared to the growth witnessed in the last decade. Its demand should increase from 32,416 units in 2012 to nearly 38,000 units in the next five years.
Despite enormous potential, execution of road projects has been very slow on account of pending policy decisions, and various administrative, procedural and funding issues. The growth of the real estate sector has also been slow. Accordingly, a major decline was noticed in the demand for wheeled loaders and motor graders in 2012. However, the market for this equipment is also expected to grow in the coming years and Off-Highway Research forecasts the wheeled loader demand to grow to 4,500 units and motor graders to around 850 units by 2017.
What are the latest technology/ product trends in the earthmoving equipment segment?
The backhoe loader is still the most popular construction equipment in India and is used for a variety of applications, which should be using specialist equipment like crawler excavators and wheeled loaders. However, with increased competition and decreasing timelines, there is a definite shift towards use of specialist equipment for the job. Therefore, in future, the demand for crawler excavators and wheeled loaders is expected to grow at a much faster rate compared to backhoe loaders. Sales trends also indicated a shift towards use of more efficient latest technology products that provide higher productivity and reliability. Even if the initial purchase cost is a bit higher, these machines provide better return to the contractors over the long run.
Equipment such as asphalt finishers, compaction equipment, crawler dozers, mobile cranes, mobile compressors, motor graders and rigid dump trucks have their dedicated application areas, while demand for other specialist equipment such as articulated dump trucks, mini excavators, skid steer loaders, telehandlers, track loaders, and wheeled dozers and excavators is still limited to niche applications.
Are the growth prospects for mini-excavators looking good?
In contrast to the more mature construction equipment markets of western Europe, North America, Japan, and most recently China, where compact equipment account for a larger proportion of machinery sales, demand for mini-excavators in India has to date remained very modest indeed due to the abundance of cheap labour, and the overwhelming popularity of backhoe loaders. However, due to decreasing availability and increasing cost of manual labour, mini excavator demand has also grown rapidly in the last few years, although their use is still limited to niche applications.
In 2007, 22 mini-excavators were sold in the country, but since then the market has grown steadily to peak at 363 units in 2012. Interestingly, even when the market for major construction equipment showed a decline in 2008, 2009 and 2012, the market for mini-excavators has continued to grow.
Mini-excavators are used in niche applications in India, where they prove to be a much more productive and efficient machine, especially in populous urban areas, and also in construction and agricultural applications where working space is restricted. Off-Highway Research forecasts sales of 450 units in 2013, which are expected to grow annually by 18 22 per cent, and expand to 1,000 units by 2017.
How do you assess the future growth potential of earthmoving equipment?
Off-Highway Research is optimistic about the future growth of the construction equipment industry in view of the high potential that exists in the country. The simple truth is that there is a massive amount of work to be done in every sector, which would require large volumes of construction equipment.
The development of infrastructure remains vital for economic growth, and the government has increased its investment target by about 130 per cent for the 12th Five Year Plan to Rs 55,746 billion (over $1 trillion) compared to the actual investment of the 11th Plan. The average investment in infrastructure stood at 7.21 per cent of GDP in the 11th Five Year Plan, while the 12th Plan projects this at 8.18 per cent.
The government is working upon speedy clearances of stalled projects due to environmental or forest clearances, and land acquisition bill is also being reformed to suit infrastructure development needs. Long term alternate financing solutions for infrastructure are also been worked out through development of bond market.
In view of the problems faced by the economy currently, Off-Highway Research forecasts the market for construction equipment will remain flat in 2013, but expects it to grow in the subsequent years to peak at over 100,000 units by 2017.