Backhoe loaders are passing through a challenging time for the past few years. Market is registering a flat growth with some indications that it is shrinking.However, now there is optimism among the leading players in the backhoe industry on the back of the government initiatives on infrastructure projects. But how far this will help this segment to regain its glory is difficult to predict. EQUIPMENT INDIA delves through the facts of the current trends and future outlook of the segment.
Backhoe loader has led the sales in construction equipment industry in India, for the past several decades. As an extremely versatile product, it has proved its importance and utility over the years. It is usually the first machine to enter a site at the start of the project and remains engaged with a variety of activities throughout its life cycle. Over the years the contribution of the backhoe to Indian infrastructure development is immense. But the recent industry slowdown has severely affected this segment. Manufacturers are contemplating new strategies to recover.
Market scenario & demand
Major players in the backhoe loader market predict a flat market this year with annual sales in the range of 18,000-21,000 units. The market in this segment is highly competitive with all the big players fighting with the leader. This sentiment is reflected in the recently announced downsizing of staff and officers by some of the manufacturers to enable them sustain their operations by cutting costs.
According to Jasmeet Singh, Head - Corporate Communications, JCB India, the industry has been going through a challenging time over the past 3-4 years. ¨As per ICEMA estimates, the market for backhoes in 2014 was approximately 21,500 units. This year has been equally challenging and we expect a more or less similar outlook,¨ he explains.
Neeraj Bhatia, Business Head, ACE, expects a sale of 18,000-20,000 backhoe loaders in FY 2015-16 in which, 50 per cent will be captive users, 20 per cent hirers, another 20 per cent mine owners, 10 per cent institutions like municipal corporations. Rajinder Raina, General Manager - Marketing, Escorts, feels, ¨During the current calendar year, the annual addition will be 18,000-19,000 units which in next five years time would be around 25,000 units per annum.¨ He sees challenge in the financing of the equipment as most of the customers are first-time buyers/users. Vijay Sharma, Executive Director, Terex Equipment, says, ¨We expect the backhoe loader market to be around 22,000 units in 2015-16. Over this base, we expect the market to grow by 3-4 per cent in FY 16-17, after which the growth rate is expected to surge to up to 7-8 per cent once the Indian infrastructure growth story engulfs most part of the country.¨ At the same time, he cautions, saying, ¨For the above to happen, we need peace, law and order (no mindless agitations), quick passage of important business legislation like land acquisition, GST, and improvement in ease of doing business, not amongst businesses but simplification in doing business with the government which essentially including permits, clearances, taxation reforms through IT enablement of government services, tenders, payments of dues/bills etc.¨
According to Kairas Vakharia, Senior Vice President - Innovation & Business Head - Construction Equipment, Mahindra & Mahindra, the current scenario of backhoe loader industry is challenging with relatively no growth. He points out, ¨In fact, as per our estimates, this industry has de-grown by almost 4 per cent YTD over last year.¨ But Vakharia is optimistic that the backhoe loader segment has a potential to bounce back. ¨With focus of government on infrastructure development and with the recent Make in India initiatives taking form, we feel that the backhoe loader industry will bounce back to new highs from its current low phase,¨ he opines. According to him, at the current rate the industry size for backhoe loaders in FY 16 would be just above 20,000.
The market demand is model-specific. Sharma says, ¨Customers go for models which provide cost-effective solution and are high in terms of quality and performance which are technologically reliable.¨ Bhatia says, ¨More than 90 per cent of backhoe loaders are sold with 76 hp engine, 1 cu m loader and 0.24 cu m backhoe bucket. This is an established combination with huge population.¨
Ajay Aneja, National Head - Sales, CASE India, says, ¨From its peak in 2011 at about 33,500 units, the loader backhoe market has shrunk in line with the overall industry size since then to reach around 22,500 units. While the decline in volume has been witnessed in 2015 as well, the rate of decline is flattening and a revival is expected in the industry from 2016 onwards.¨
Growth prospects & challenges
According to Sharma, on an average about 24,000 new backhoes are being added every year. This makes it the largest selling CE product category. ¨Globally, backhoe is a utility machine, however, in India, it is positioned as a productive machine, which has to turn out profits and payback the cash used to fund it. This product category will continue to thrive for a long time as it accurately represents the great Indian entrepreneur, who is very actively engaged in the process of nation building.¨ Says Singh, ¨We feel that there will always be a strong demand for backhoes, in the Indian market, mainly due to the variety of tasks and applications that the product can accomplish. As new projects get announced, the demand is also expected to rise and in the coming years a minimum of 10 per cent growth may be expected.¨ Bhatia expects low growth for backhoes as he says, ¨Backhoe loader market is maturing and a 7-8 per cent annual growth is expected in the next five years. It is a support machine, not a mass production machine, so growth is feeble.¨
The key challenges in its growth path are the availability of funding options and innovative financing products for buyers wanting to own and operate their first backhoe loader, according to Sharma. ¨The rationalising of on road prices across different states in India will also give a fillip to demand as taxes and taxes over taxes make this product unviable in certain states. A GST regime will help this product category grow at 200-400 bps.
Channels of growth
Distribution network and aftermarket channels remain critical part in construction equipment industry, according to Sharma. ¨When it comes to distribution network, business viability still remains important aspect. Area coverage, responsive sales operations, maintaining cash cycles and inventory turns are key challenges in controlling channel inventory and costs. To remain responsive to customers, speed and accuracy of information makes all difference. The same is applicable for aftermarket channel, that needs to be service centric and for this they need to be proactive in tracking and maintaining assets on the ground. A well-coordinated and integrated IT enabled system is the only solution for better distribution network and aftermarket channel,¨ he points out.
Singh says, ¨There is always a need to be close to customers, and due to the unique nature of this industry sustained expansion of the distribution channel is important aspect of reaching out to customers.¨
Speaking about the distribution and aftermarket channels, Raina observes, ¨The geographical spread of the product is pan India including very far off places and the customer expectation on the uptime of the machine is very high. This asks for quick response and low turnaround time. We at Escorts have almost doubled our sales and service outlets in the last 15 months to meet the expectations of the customer.¨
Ensuring the best quality of product, service and immediate response to customer at his door step are major factors for a successful business. Understandably, the above responsibilities are undertaken by authorised dealers.
Bhatia is of the view that a combination of feet on street of own service engineer and dealer´s team will ensure this. ¨Availability of spares and training of dealer service team are essential. Breakdown period should be less than 24 hours on an average,¨ he says.
Singh elaborates on JCB´s presence, ¨With over 600 outlets, JCB India has the largest dealership network in the construction and earthmoving equipment industry and employs over 6,000 trained professionals at these dealerships. These outlets are spread all across India and provide professional product support to our customers. Each of these outlets has trained manpower and adequate parts stock.¨ He adds, ¨Machines operate at arduous sites. To address this challenge apart from service vehicles we also have mobile vans that have the concept of ´Workshop on Wheels´. These vans are fully equipped to handle most service and repair jobs on JCB machines.¨
According to Sharma, Terex measures the NPI score (Net Promoter score), an exercise conducted by a third-party to validate the record on the perception of its machine owners vis-a-vis its products and services offered. He elaborates, ¨Terex India operations have scored very high on all major attributes. Our dealer network fully understands the importance and goes out of the way to accommodate a customer´s demand and keep him happy. Our strategy attempts to not only define, but also helps our partners differentiate between being customer focused, customer compelled or customer centric. We believe in being customer centric, which essentially means keeping the customer at the centre and designing and conducting all our activities to help him achieve his business objectives.¨
Products & Technologies
Considering the current market scenario, there doesn´t seem to be major changes in the products in the near future. Raina says, ¨The 2W & 4W variant with two different HP engines, different types of buckets and tyres is available with all the leading manufacturers. Digmax II was the first backhoe loader to offer Equipment Monitoring System (EMS) but others are catching up on this feature because of its benefits to the owner and service provider. Improvements would continue to be made for reducing fuel consumption and improving productivity but no earth shaking changes would be made in backhoe loaders for a few more years.¨ He further adds, ¨Digmax II and Digmax II 4 wheel drive find acceptance based on application and the region. High altitude areas would always constitute of 4W drive market as would high gradient application areas like mines. The popularity of the model is application specific. A standard machine would therefore be the most sold machine with tyres standard/heavy duty being the two options chosen from.¨
Elaborating on the product ranges, Singh says, ¨JCB today has the most comprehensive range of backhoes in the market. We have a total of five models on offer for our customers. These range from the Compact 2DX, the bestselling 3DX with the variants (3DX Xtra and the 3DX Super) and finally the larger 4DX. All these machines come with a variety of extra options to suit the requirements of our customers.¨ JCB machines are now fitted with Livelink technology and customers can get SMS alerts on their mobile phones or smart devices regarding service alerts, operations and security of their machines by using the Geo Fencing and Time fencing features. All this information is available to the customer in real time basis. Terex has recently achieved a historic milestone by rolling off its 10,000th backhoe loader from its assembly line at Greater Noida plant. Says Sharma, ¨We are continuously evaluating many options which will help our customer save more and/or earn more. Productivity and profitability improvements are the top agenda in all our design and product improvement meetings. We may not want to outclass competition over mundane physical specifications, but rather focus on how our machines can widen the advantage gap with respect to production levels and overall costs of operations, thus giving a Terex user a much higher ROE against any competitor model.¨
According to Bhatia, ACE is in the process of launching new model during Excon, Bangalore in November 2015. ¨We will elaborate more at the time of launch,¨ he says, without disclosing much on the details.
The Construction Equipment Division of Mahindra & Mahindra offers three variants Mahindra EarthMaster VX, Mahindra EarthMaster SX and Mahindra EarthMaster 4WD. The flagship Mahindra EarthMaster VX caters to the top end of the market with its superior features, while the EarthMaster SX caters to the entry level customers with its highly competitive price, according to Vakharia.
For higher fuel efficiency, higher production and greater operator comfort, CASE has designed the new EX series of loader backhoes in 76, 86, and 96 hp in India. Aneja elaborates on the new series, ¨Our recently launched CASE EX Series loader backhoe CASE 770 EX, CASE 770 EX Magnum and CASE 851 EX are powered by S8000 Engine and deliver powerful performance and fast response time coupled with a 5 per cent higher productivity and fuel savings of up to 13 per cent. This makes S8000 the most fuel efficient engine in the market, which translates into huge savings for our discerning customers.¨
Safety is of paramount importance in every kind of machines. Compared to other types of machines, backhoe loaders remain a safe and stable machine. Elaborating on the safety and operator comfort features in Escorts´ range, Raina says, ¨The operator seat, position of the operating levers minimises the operator fatigue in Digmax II. The high quality electric harness ensures that there are no electric circuit related hazards that could harm the operator. There are a host of other features that make the machine safe.¨
According to Sharma, Terex is committed to designing, manufacturing and selling safe products in compliance with the standards and regulations for markets in which they are sold and used. He adds, ¨All our products comply with the best safety standards. Safety is not a variable in Terex´s business practices, it is the foundation stone of our business. With this philosophy, we take utmost care for our operator safety and comfort while designing our machines.¨ Certain safety and operator-friendly features of Terex range include: ergonomically designed cabin with tinted safety glass - wide glazed surface glass giving total visibility, larger and spacious cabin with enhanced interiors that provide safety during operations. Boom and swing lock facility is provided within cabin for operator to control the same while remaining in cabin, in-built loader arm locking strut that provides safety during road transport and idle position.
According to Bhatia, ROPS cabin and operator´s visibility are some of the major safety and operator-friendly features in ACE backhoe loaders.
The Mahindra EarthMaster series comes with various safety and operator-friendly features. The REMOTECARE feature takes freedom to the next level. It is an intelligent communication system that keeps the business owner or manager constantly informed about the machine through mobile phone based SMS updates. The machine also comes with futuristic styling, superior comfort and convenience. Mahindra EarthMaster VX offers specially designed joysticks that are not only easy to use but also minimise fatigue, thus allowing operators to work long hours. According to Singh, all JCB backhoes have re-enforcements in the cabin and have seat belts for operator safety. He elaborates, ¨Tinted cab glasses with rear view mirrors provide for excellent all round visibility. For operator comfort, JCB machines have the best-in-class cabin and also have the options for servo controls and air-conditioning.¨
Aneja explains the features in the EX series, ¨This series features the largest cab in the industry and sets a new benchmark in comfort. The wide windows and narrow pillars provide excellent all-round visibility, with an unobstructed view to the attachments and to the bucket edge. The mechanical suspended seat with a cushioned high back is fully adjustable to provide the optimal driving position. The ergonomic layout of the controls further adds to the operator´s comfort and ease of operation. Improvements have also been introduced with new rocker illuminated switches to improve reliability and guarantee maximum switches visibility in dark conditions. The overall ROPS / FOPS structure of the cabin, provide unparalleled safety to the operators.¨
Backhoes have a major presence in rental market. Providing a comparison between owning and renting an equipment Raina points out, ¨Deployment in excess of 12 hours a day/3,000 hours plus in a year justifies owning the machine. Utilisation below these levels would justify going the rental route. Corporates which have to execute big chunks of earth work and industries where loading re-handled material on a continuous basis is involved would find owning a backhoe loader highly economical. Short term and intermittent usage justifies deploying backhoe loaders on rental basis.¨
Bhatia says, ¨Presently rental market of backhoe is in stress due to severe competition, population and dropping rental charges of backhoe loader. Approximately Rs 70,000 for 260 hrs a month is the rent for backhoe.¨
Backhoe market is undergoing a change in the buying pattern of its customer. Sharma observes, ¨No doubt, the rental market in India is witnessing positive upswing. Nowadays, when projects are time-bound delivery based and contractors work on more than one project at a time, they have to go in for a hiring/rental business model. Majorly, contractors face difficulty in investing huge amount and increasing their capital expenditure during the initial stage of the project, also the maintenance and operating cost of specialised equipment can be unpredictable. Therefore, hiring a machine becomes a better option.¨
On the current rental market trend, Raina says, ¨With supply of equipment far exceeding the demand in the market, the rental rates are very low. This has resulted in spurt of demand in the rental market. Rental machine also takes away the hassles of equipment management. For the above reasons, India would dominantly remains the rental market.¨
However, Sharma suggests that the rental business lobby needs to reorganise, as they are very region-specific and scattered. ¨The rental segment has a long way to go. We have serious rental players who are able to organise this business segment and have business models geared to provide greater value and ease in operation to its customers,¨ he adds.
According to Vakharia, Service and Quality of Service are two critical aspects in the backhoe loader industry. ¨Uptime of machines are critical as the livelihood of the backhoe loader customer is dependent on the same. Hence ability to provide service at the site in the shortest possible time are two critical aspects for a backhoe brand to succeed,¨ he says. He elaborates on the various customer-focused initiatives at Mahindra, ¨We have strong initiatives called ´Customer Care´, wherein we repair the machines and interact with customers. We ensure that every service called is executed within 12 hrs. We have a 90 days and 300 days feedback process in place which provides a basis to evaluate customer satisfaction on machine performance, business performance, service satisfaction, time to restore, parts availability and a few more critical factors.¨
Says Sharma, ¨Customer service will always provide us the critical competitive advantage translating users into repeat customers. They not only buy your product repeatedly, but also showcase their trust in you, in your product and in your service. Terex has always overwhelmed by its repeat customers as we believe in providing complete and cost-effective solutions designed for them to succeed in their businesses.¨
Bhatia says, ¨Captive users and institutions like municipal corporations are our major customers. We are providing best technology at most economical price.¨
Raina gives a break-up of the backhoe loaders categorised on the basis of user segment as follows. First time buyers, first time users, small and mid size contractors put together comprises 92 per cent while plant hirers, corporates, government bodies (almost in equal proportion) constitutes the balance 8 per cent. He says that it is difficult to categorise the market on the basis of the application as backhoe is used for all conceivable works in India.
Singh explains, ¨JCB machines are present on most construction sites and our customers range from first time buyers to large engineering conglomerates. However, the basic expectation of all customers still remains that of product quality, performance and value for money. Repeat customers are a testimony to our quality and processes and we are thankful as always to them for having made JCB their brand of choice.¨
Emission norms on construction and material handling equipment are going to get stringent. According to Raina, Escorts is aligned to the norms that would be made mandatory by 2017 and 2020. ¨Escorts is ceased of the government plan of emission norms till 2020 and work is on to match the demand,¨ he adds.
According to Sharma, the recent announcement by government regarding emission norms are subject to various factors like availability of cleaner fuel and various level advancement in engine design to meet the desired levels of particulates. ¨No doubt, that these norms will take us towards a better environment, but on the other hand would need a lot of work to be done by all stake holders. Availability of cleaner fuel from oil companies and investments for upgrading engine manufacturing facilities and technologies by engine manufactures will remain a challenge for implementing new emission norms,¨ he points out.
Vakharia says that Mahindra is already geared up to handle emission norms. ¨All our variants of Mahindra EarthMaster are BS III compliant,¨ he claims.
JCB has also given major focus on emission norms. Says Singh, ¨All our machines are fitted with modern engines that comply to the latest emission norms. The fuel efficient JCB ecoMAX engine fitted in our 3DX machine is a BS-III compliant green engine and has been specifically designed for Indian climatic, terrain conditions and machine usage pattern. Our environment-friendly engines with low noise and vibration and longer engine life add to customers delight. Moreover, better filtration and fuel injection allows JCB engines to perform well in off-highway applications.¨ Bhatia is of the view that implementing latest emission norms will increase cost. He says, ¨We are complying with emission norms. Implementation of BS IV engines would increase input cost.¨
With a huge existing population of machines in the market and project demands still to pick up, demand outlook remains grim in the short term, at least. Says Bhatia, ¨Backhoe loader market is shrinking. Customers are opting for either wheel loaders or excavators instead of multipurpose machine. Moreover, a huge population of backhoe loaders is available in the market. Challenge would be to differentiate product from competitor.¨
However, Vakharia is bullish on the industry when he says, ¨In the next few years, the size of the Indian CE industry, by volume, will begin to approach that of Europe. India along with China and Brazil, is poised to be one amongst three large and growing CE markets globally. This has led to various new players entering the industry. We expect the CE industry to become hyper competitive with constant pressure on existing players and new incumbents to continuously improve their value proposition and cut costs. The high margins that have traditionally been earned by market leaders will come down.¨
Sharma also stays positive on the outlook as he says, ¨The country is going through a turnaround phase of its infrastructure development, and backhoe loader is a machine which is known for its versatility always takes the centre stage.¨