With the latest moderation in lending rates and the availability of funds for infra projects, through the formation of REITs and INVITS, the road ahead looks easier for equipment financing than the recent past, says Abhijit Gupta, Managing Director, Case Construction Equipment India. Excerpts from the interview...
How do you look at the current progress of project execution across the infrastructure segments?
Many infrastructure projects were announced in 2013 and 2014 which got awarded to several Infra companies and contractors after competitive bidding. Quite a few of these however got stalled due to land acquisition issues, environmental clearances and ability to arrange funds. These inordinate delays coupled with burden of high interest rates from the banks for active projects dented the ability of the contractors to execute the projects within same estimated costs. This has had a trickledown effect on the associate sectors such as Earthmoving and construction equipment segment which registered its straight 3rd year of decline in CY 2014.
Now with recent changes in the government approach towards greater transparency in project allotment through e-auctions, flagship Swachh Bharat program including river cleaning, focus on more and better quality roads and highways is likely to translate into greater industrial demand in the construction equipment sector in near future.
How do you assess the growth potential for earthmoving equipment?
Last few years have not been conducive to infrastructure sector including earthmoving equipment, which has declined by 15 per cent in 2013 and by 16 per cent in 2014. The decline however seems to have gotten arrested in the past few months and some green shoots are emerging. This is effective tilting the balance towards greater demand of construction equipment, especially those pertaining to the road sector.
The demand remains subdued and scattered with no clear sectors leading the pack. However, at macro level Rural India is contributing consistently and now even higher than the urban India in past few years. This has been a positive and robust signal for revival in near future.
Agriculture contributes 14 per cent to India´s economy and rural India supports half the population housing 800 million people. Developing the rural infrastructure, especially irrigation and roads, therefore is paramount to sustain the population´s livelihood and to improve mobility and connectivity. Rural road flagship schemes such as PMGSY have yielded exceptional results over the past decade making rural India´s growth exceed that of urban India for the first time in last five years. All of this, backed with 158,000 km of new roads planned in rural areas in the on-going five year plan, indicates strong growth prospects of earthmoving and construction equipment in rural infrastructure development.
How do you foresee the growth demand by 2017? With a new government at the Centre with a clear majority and backed with a development based manifesto the future looks good. With the focus of new government for swift execution of infra and road projects and increase inflow of funds to the pre-announced projects, positive sentiment is seen. We expect that the annual Budget will give further impetus for faster execution for all types of infrastructure projects. Clear growth oriented intention shown by the new government in clearing policy related hurdles, should translate into tangible demand in the upcoming fiscal. All this is expected to translate into a growth in equipment demand to the tune of 17-18 per cent from now until 2017.
What sort of demand pull you anticipate from the hiring segment?
With big tickets projects likely to be announced in near future, the scope of localized sub-contracting and consequently the scope for the hiring sector is likely to grow. With fuel prices and the prime lending rates from banks also moderating of late, the affordability of the hourly cost benefit is making much more economic sense for the hiring segment. With these indicators we anticipate the hiring sector to regain their majority position in the rental equipment purchase, especially in the loader backhoe segment.
The decline seems to have gotten arrested in the past few months and some green shoots are emerging.