Samir Bansal, General Manager - India, Off-Highway Research.
In view of the government's resolve to contain the fiscal deficit within the planned target, it will be difficult to spend heavily on infrastructure at the moment; however, the situation is expected to improve after the 2014 elections, says Samir Bansal, General Manager - India, Off-Highway Research. Excertps of the interview.
Could you brief us on the demand-supply scenario for excavators in different verticals?
Within the Indian construction equipment industry, the crawler excavator segment is the largest by value and the second largest, after the backhoe loaders, in terms of number of units sold. The demand for crawler excavators stood at a level of 2,500 units in 2003 which increased significantly with each passing year to reach 9,904 units in 2008. Thereafter, it suffered a drop of 20 per cent in 2009 but rebounded to 11,457 units in 2010 and this further increased to its peak level of 15,000 units in 2011. Due to the prevailing unfavourable economic scenario in the country, the market for crawler excavators declined to around 10,500 units in 2013.
What is the growth potential for excavators?
The crawler excavator is a versatile product with applications in all types of construction and mining activities, and therefore, it is very difficult to arrive at a consensus on its distribution by application. During their working life, machine applications may also vary from time to time depending on work requirements and the nature of the project. Rentals remain the most important end-use segment for hydraulic excavators, and it is estimated that nearly 47 per cent of the active machine population is deployed in this sector.
Quarry operators and aggregate producers (including sand, stone, granite, marble and limestone) account for 19 per cent of the total population followed by road contractors' contribution of 11 per cent. The excavators bought by the land development contractors and companies are estimated at eight per cent. The coal and metal mining segment (which invariably use larger machines) accounts for seven per cent of the machine population and the irrigation contractors' contribution stand at six per cent.
Due to the amount of infrastructure work yet to be completed in India, the outlook for the crawler excavator industry is positive in the long run, despite a drop in sales in the last couple of years. Off-Highway Research estimates that the demand for crawler excavators will reach a level of 23,000 units by 2017 with proportional contribution from all the above sectors.
Brief us on the latest trends in products and technology.
The crawler excavator is one of the most competitive product segments in the Indian construction equipment market and the models which are currently available in the market offer varying levels of technology. Around 86 models of excavators were actually sold in the country in 2012, a fact that underlines the diversity of demand that exists in the country for these machines. A very significant point to note is the varying levels of technological sophistication in excavators that are currently being promoted. This varies from the basic technology to the latest generations of machines from Caterpillar, Hitachi, Kobelco, Komatsu and Volvo, with varying levels of technology in between. Contemporary machines have electronically controlled engines, electronic monitoring and control systems with automatic mode selection. They are fitted with efficient hydraulic systems, which results in higher breakout forces, faster cycle times and greater fuel efficiency. Initially, domestic manufacturers were supplying machines with outdated technology for many years, but with the entry of technologically superior, imported excavators and the pressures of time bound contracts, many buyers have moved towards more sophisticated machines. The demand for lower technology equipment is clearly on the decline, and now stems mainly from smaller, price-sensitive contractors. A large number of Indian contractors are also now executing projects abroad and therefore require excavators that are compliant with global emissions and safety standards, which will encourage the further enhancement of technology in the future.
What are the major challenges, especially in terms of finance?
Financing is critical and, generally, excavators are financed through banks or Non-Banking Financial Companies (NBFCs). The financing period varies from two to three years, and the down payment is 10 to 30 per cent of the agreed transaction price, depending on various factors like the buyer's credit rating, track record, work experience, work in hand and the guarantor's financial strength. The manufacturers also offer different subvention schemes to the various financiers from time to time, in order to promote their products in the market.
Almost all the manufacturers have signed agreements with NBFCs and banks for providing loans to their customers. However, the country is currently passing through difficult times in view of the slowdown in the economy and business activity, and therefore, many buyers/customers do not have a good credit rating/repayment track record. As a result, the real challenge lies in getting equipment finance at reasonable terms.
How do you assess the growth potential for mini-excavators?
In contrast to the more mature construction equipment markets of Western Europe, North America, Japan, and China, where compact equipment accounts for a large proportion of machinery sales, the demand for mini-excavators in India have remained modest. For the purpose of comparison, in 2012 the mini excavator market stood at 43,391 units in Europe, 22,625 in North America, 24,000 in Japan and 26,650 in China, whereas it was only 363 units in India.
Although the demand for the different types of construction equipment is expected to decline in 2013, the sales of mini-excavators are expected to rise. Off-Highway Research estimates that the market for mini- excavators will grow to 450 units in 2013 and will reach a level of 1,000 units by 2017. Mini-excavators are used in niche applications like plantations and in populous urban areas where space is a big constraint. Besides, these machines are also used in agriculture applications and construction activities like foundation work, trenching, tunnel works, ditch cleaning and cable-laying wherein the machine has to work in restricted areas. With the increasing shortage of manual labour, dependency on machines will continue to rise and this will help in the growth of the mini-excavator market in the coming years.