With strong pipeline of road projects to be awarded by NHAI and state governments over the next three to four years the road equipment segment is expected to grow multifold.
The need for better infrastructure is pressing with India´s rapid urbanization and burgeoning middle class. Some 590 million people will live in cities by 2030, and could account for 70 per cent of Indian GDP, according to a McKinsey report. In addition, the rapid growth of the Indian economy in past has placed increasing stress on physical infrastructure i.e. electricity, railways, roads, ports, irrigation, water supply and sanitation, all of which suffer from deficit in terms of capacities as well as efficiencies.
As per reports, the value of roads and bridges infrastructure in India is projected to grow at a compounded annual growth rate (CAGR) of 17.4 per cent over FY12-17. The country´s roads and bridges infrastructure, which was valued at $6.9 billion in 2009 is expected to touch $19.2 billion by 2017. The financial outlay for road transport and highways grew at a CAGR of 19.4 per cent in the period FY09-14. For FY14, India´s Planning Commission provided an outlay of $6.9 billion for the roads segment.
Highlighting the demand-supply scenario, Samir Bansal, General Manger, India, Off-Highway Research, had this to say. ´Demand for road equipment comprising asphalt finishers, compaction equipment and motor graders, is inevitably linked to the level of road building activity. Sales peaked in 2007 with the implementation of many rural road programmes but remained low thereafter, following a slowdown in the implementation of national highway projects.´ He adds, ´Demand for motor graders depends on the execution of major road projects as their use is very limited on the district and rural roads. Therefore, its market has witnessed a major decline from a peak of around 550 units in 2007-2008 and has halved to around 275 units in 2013 due to the ongoing problems with execution of national highway projects.´
According to Bansal, the demand for compaction equipment has declined from a peak of over 3,200 units in 2007 to around 2,500 units in 2011 and has remained steady thereafter. Similarly, the market for asphalt finishers declined from a peak of 925 units in 2007 to around 700 units in 2011 and has subsequently remained at that level. This demand is sustained mainly by the ongoing road construction activity in the states. He comments, ´The asphalt finisher market is dominated by locally manufactured wheeled machines. Mechanical drive is popular in the smaller under 5.5 m finishers, mainly on account of price, while the larger machines invariably have a hydrostatic drive. The introduction of stricter engine emission standards by the government and mandatory RTO registration of machines has forced some of the smaller domestic manufacturers out of the market, which is consolidating towards hydrostatic, multipurpose machines that are fitted with sensors.´
Currently, about 189 highway projects involving investments of nearly Rs 1,80,000 crore are stuck due to problems of land acquisition, delays in forest and environment clearances, non-transfer of defence land and hurdles in rail overbridges. It is heartening to note that concerned officials of the ministries of highways and railways had to resolve inter-ministerial issues which had delayed highway projects across the country. Immediate attention is required towards environmental clearances for BOT projects, the need for long term funding and also addressing the land acquisition issues, to accelerate the growth in infrastructure projects. The bidding systems for BOT projects and especially for the EPC projects needs to be rationalized to ensure that only those contractors with technical and manpower competence are allowed to bid for these projects so that once they get the project they bid more rationally and are executed because currently in some cases, the contractors after being awarded the projects find that it is no more viable for various reasons, some of which are attributed to their bidding and some to the government. So definitely the bidding system needs to be rationalised to ensure there are strict prequalification norms for submitting a commercial bid.
The Indian road equipment market is worth Rs 800-1,000 crore per annum and is likely to grow at the rate of 10-15 per cent per year. The demand for road-building equipment looks promising. Last year, the road construction equipment market stood at an industry volume of 2,500 machines and it is expected to grow at the rate of 5-10 per cent in the coming years. While the industry waits for more investments to happen in national highways, there are lot of state highway projects that are picking up in Uttar Pradesh, Rajasthan, Bihar, Karnataka, Tamil Nadu and the North-east. Prantik Saha, Marketing Manager - Road Construction Equipment, Atlas Copco, says, ´In the next five years and beyond, we believe there will be a realization of the huge untapped potential in all product segments of the road equipment sector in India. Compactors, pavers and tandem rollers, equipment such as planers, feeders, etc, will also get an opportunity to deliver higher quality roads in India. Recent surveys on road development in India indicate that in developing markets like ours, road infrastructure will be an extremely important component to support the growth opportunities.´ Saha adds, ´The Northeast in particular, has very few roads and very low connectivity. Looking at current activities and projects, this region is a major focus area with plans in place by authorities and quick turnaround time for awarding projects. Today, demand for equipment is also increasing gradually from this part of India.´
Observes Ramesh Palagiri, Managing Director & CEO, Wirtgen India, ´Work on state highways for certain states like Madhya Pradesh, Uttar Pradesh, and Rajasthan, has seen a pick-up in activities and that´s the reason why the road equipment sector is able to sustain itself. However, the next one year will continue to be challenging for this sector as it takes time for the various steps taken by the government to translate into work on the ground. For the healthy growth of the sector, the requirement is to clear the bottlenecks in infrastructure sector and in particular, the road sector.´ Sanjay Wadnerkar, Vice President, LiuGong India, elaborates, ´I foresee a fair amount of bidding in the coming years. The bid pipeline is significant with projects worth several thousand crores or rupees, comprising approximately 10~12,000 km.These projects include both NHAI projects and state government projects. The turnaround is expected in BOT awarded projects operational in 2015~16. Though fund is challenge but ADB, Japan Bank and WB support can release the pressure in the system which can help OEM like us to sustain.´
The Indian government plans to develop a total of 66,117 km of roads under different programmes such as National Highways Development Project (NHDP), Special Accelerated Road Development Programme in North East (SARDP-NE) and Left Wing Extremism (LWE), and has set an objective of building 30 km of road a day from 2016. Also, about two-thirds of NHDP road projects (ex-Phase IV) have not been awarded as yet, thus offering a massive opportunity to private players in future. The Prime Minister has set a target of awarding projects for the construction of 8,500 km of highways by the end of March 2015.Against a target of 9,638 km during 2013-14, the previous government managed to award projects of only 3,169 km.
The government has approved road projects worth about Rs 40,000 crore ($6.53 billion), including around Rs 20,000 crore ($3.26 billion) highway projects in J&K, Rs 15,000 crore ($2.45 billion) road-building projects in the North-east, Rs 6,000 crore ($980.55 million) road network in Uttarakhand, and realignment of roads in Himachal Pradesh.
With strong pipeline of road projects to be awarded by NHAI and state governments over the next three to four years, the opportunities for both developers and contractors will be sizeable, which augurs well for the equipment suppliers. Considering that infrastructure development is a direct result of GDP growth, by 2017, the growth of road equipment division will be around 15 per cent and may increase to 20 per cent by 2020.
The future for the road equipment market in India still holds much potential as this sector has a profound and immediate impact on the country´s economic growth. Off-Highway Research is optimistic about the growth in demand for road equipment and forecasts growth at a CAGR of 12.67 per cent over the next five years.