German investors are taking a positive long-term view of Indian market and continue to invest in their operations to tap growth opportunities. Maharashtra, with around 39 per cent share of German investments, remains the most attractive destination, says Rajesh Nath, Managing Director, VDMA India. Excerpts from the interview.
How do you assess the current CE market scenario and its growth prospects, especially in mining?
Mining machinery manufacturers based in Germany were not too hard hit by the financial and debts crisis. Since 2007, their annual turnover has grown by about 13 per cent on an average. In 2011, the growth was nearly 27 per cent. And recently, the turnover reached a record figure of € 6.2 billion. Mining machinery made in Germany has excellent reputation worldwide. The manufacturers expect similar sales ahead, as they already have orders in their books for the coming 12 months and more, and there are expectations of slight growth.
What is the investment opportunity for the manufacture of equipment for mining sector?
Germany ranks eighth among foreign investors in India. Despite the global recession in 2008-09, German investors continued to show great interest in India when they invested an all-time high amount of $629 million, showing an increase of 32 per cent over 2007-08. German investors in India take a positive long-term view of the Indian market and continue to invest in their operations to tap growth opportunities. Maharashtra, with around 39 per cent share of German investments, remains the most attractive destination; Pune has lately become quite popular, too. Karnataka and Gujarat are other important destinations.
Are the growth prospects for mining equipment good, especially from coal mining and minerals?
Mining has a long lasting tradition in Germany and there is still a lot of mining going on in the country. Germany produced last year 770 million tonne of raw material and is the number one producer of lignite coal (brown coal) digging out 180 million tonne in 2012. The Indian mining market holds large potential for German manufacturers because the degree of mechanisation is developing. In the last five years, the total import of mining equipment to India increased from €0.12 billion to €0.42 billion in 2010, and rose again to €0.78 billion in 2012. GermanyÆs share was nearly constant, fluctuating between 63 and 75 million.
What has the overall performance of German OEMs in India been like?
Germany is India´s largest trading partner in Europe. The trade between India and Germany during the first quarter of 2013 was down by 11.8 per cent as compared to the same period last year. The volume of trade amounted to nearly €4.2 billion during January to March this year. While Indian exports to Germany declined 6.4 per cent to reach a figure of €1.8 billion, Indian imports from the country dropped 15.4 per cent amounting to nearly €2.4 billion. India imported machinery, including mining machinery, worth €726 million during the first quarter of this year, which accounted for over 30 per cent of the total imports from Germany during this period.
The Indian economy will see a turnaround in the coming quarters on account of various steps taken by the government to spur growth. Until the market conditions are improved, the German companies presently in India are focusing on services and value addition; this includes maintaining existing machinery, streamlining operations and saving costs. They are increasing the local procurement and limiting imports to essential and critical parts only.
Are there any positive signs from the government that a revival is imminent?
For the past few years, global economic uncertainty combined with political upheaval has presented the mining sector with a volatile environment in which demand for metals, natural resources and commodities has ebbed considerably. India has an estimated $200 billion of as-of-yet untouched mineral reserves. More than 80 mineral commodities are produced here and India ranks among the world leaders in iron, bauxite, zinc and coal.
Hastening disinvestment of public sector units, ensuring coal supplies to the power sector and promoting competition in the mining sector would be some positive developments in the mining sector by the government.
What is your take on the devaluation of the rupee, high cost of funding, and ever-increasing cost of input materials?
After a tremendous run where mining equipment manufacturers tripled their turnover within 10 years to €6.2 billion, 2013 is estimated to end on a 1-2 per cent increase to about €6.3 billion. Companies are anticipating losses in the lower double-digit percentage range in 2014, due to falling raw material prices and general market insecurity.
However, German manufacturers should benefit primarily from the increased cost awareness of their customers and falling raw material prices. Here, life cycle costs û ie, not only the cost price of a piece of machinery but also the costs it generates over its entire life cycle û are moving increasingly into the focus.
Furthermore, many large mining companies are now under pressure and are no longer going for package agreements but increasingly splitting their purchasing transactions. This should mean additional orders for us.
Which is the major equipment supplied to mining sector by German OEMs in India?
The Mining Equipment Association within VDMA consists of 135 manufacturers who offer equipment for mining nearly every raw material. The members of VDMA mining equipment represent approximately 90 per cent of the entire trade volume and offer equipment, solutions and knowhow for underground mining, open cast mining, material handling, mineral processing technology as well as consulting, research and development.
Mining equipment covers a variety of machinery such as hydraulic excavators (65T and above), wheel loaders, backhoe loaders, dumpers, shovels, cranes, dozers (above 320HP), off-highway dumpers (35T to 170T), drills, draglines, surface miners, rope shovels etc.
What is the potential for underground mining equipment? Are there any major German players who have invested here in India?
In the case of mining equipment, the technology depends on the mining operations prevailing in the country. In India, open cast mining is much more popular than underground mining. Hence, regarding the equipment required for open cast mining like dumpers, dozers, shovels, draglines and excavators, the level of technology of the equipment manufactured is at par with international standards. German manufacturers and VDMA mining equipment do a lot to keep the leading position in mining technology, especially in underground mining and in safety technology. Many German companies are planning more investments in India. In the construction equipment and building machinery sector as well as the mining machinery sector, companies like Liebherr, Beumer, Wirtgen, Caterpillar, Putzmeister, Hess, BHS to name a few, have invested substantially in the last few years.
How do you view the future potential for mining equipment in India?
Though Indian industry has been witnessing a slowdown, it is still growing. With the depreciating rupee, exports have become lucrative for Indian equipment manufacturers. The slowdown should be utilised as an opportunity to review the process in the company. Since business is always cyclical, it is important that the companies maintain a positive outlook and work towards implementing certain changes.
While three years ago, the mining industry, with the exception of the manufacturers of mining machinery, suffered immensely from the effects of the worldwide economic and financial crises, today the situation has improved significantly, except for those countries that are currently most affected by the Euro crisis.
German manufacturers and VDMA mining equipment do a lot to keep the leading position in mining technology, especially in underground mining and in safety technology.