The depreciation of the Indian rupee has had its adverse impact on the manufacturing sector, especially OEMs who import various components. To the extent possible, OEMs are trying to localise production, but that is just a part of it. What the industry is looking is for concrete measures that can bring life back into the economy and trigger growth in a sustainable way.
The business of construction equipment (CE) manufacturers in India has been badly affected by the devaluation of Indian currency. It straight away increases material costs by over eight to ten per cent, and ultimately increases the cost of the equipment, too. It is near impossible in the capital equipment industry to realise this increase from the customer, especially when the economy in such a state with projects getting delayed. Because of the prevailing conditions like an unstable political situation, economic downslide, uncertainty in the mining and construction industry, the market is witnessing an acute slowdown, and there is a drop in projected market volumes since the last six months.
Says DK Vyas, CEO, Srei, "There is a de-growth in equipment sales across almost all product categories, which is typical in an economic slowdown. The financial condition of the majority of large customers in the infrastructure sector is also not very healthy. They have high debt levels and lack new projects. The pace of execution of earlier projects is also slow due to multitude of reasons. These two factors along with high interest rates, rupee depreciation and a weak financial environment have affected new business volumes. This has resulted in a drop in the volumes of finance, too. Though the situation has not reached crisis point, we anticipate this trend continuing for a few more months."
According to Anil Bhatia, Director Sales and Marketing, Case India, the depreciation in currency has affected most of the major companies. "The business of construction equipment (CE) manufacturers in India has been badly affected by the devaluation of Indian currency. There are hardly any contracts being finalised, making it extremely difficult for the construction sector to survive. The depreciation of the Indian rupee straight away increases our material cost by over eight per cent. In the capital equipment industry, it is impossible to realise this increase from the customer, especially when the economy in such a state, where the projects are getting delayed. The depreciation of the rupee has also affected local manufacturers who import the component substantially. This ultimately increases the cost of the equipment." He further adds, "The rupee depreciation will make the imports costlier, impacting the production costs. On the other hand, it has made exports more attractive."
Says Ramesh Palagiri, Managing Director and CEO, Wirtgen, "The devaluation of the rupee has made our products more expensive by around 20 per cent in the last few years and this may drive some customers to look at rental or used machine options."
Says Viraj Parthi, India Country Leader, Terex Mobile Processing Equipment, "The impact of devaluation has been severe on the crushing and screening equipment industry. Though we have a local factory in Hosur, the content of imported items is high and so we get directly affected by this volatility. We are continuously working on localisation of our products without making any compromise on quality and hope that within next 12 to 15 months, we will have the majority of parts from India only."
Piyush Munot, India Managing Director, ZF had this to say: "The current economic scenario with a high CAD and the rupee's depreciation, has increased input costs across many sectors amidst weak demand environment. This has pushed companies to further accelerate their localisation across the entire value chain. At ZF, we expanded our localisation portfolio from the backhoe loader driveline to also include wheel loader aggregates with a strong focus to harness the full potential of Indian supplier and production base. Besides this, ZF is continuously taking advantage of the rupee depreciation and has integrated exports as part of the local strategy."
According to Kapil Sehgal, Managing Director, Bucher Hydraulics, currency inflation is the biggest challenge. He says, "We don't get a price increase to the tune of euro or dollar exchange rate fluctuation for products that come from Europe, which is a big problem for us. India is a very competitive market and our source plans do not put in too much of a margin when they sell the products to Bucher India to be able to support us, and to offer competitive solutions into the market. India is a very price- sensitive market. Now if you have a euro fluctuation from 57 to 72, that kind of pricing change has not come from the market. That has impacted our profitability and capability to offer new and better solutions."
"It certainly has had its impact on usbut we have been progressing on a consistent basis and have always been there in the market with new product to meet all challenges. We do believe that to ensure your growth in the market, you need to be consistently innovative. Our ability to provide customised solutions helps us sustain the growth momentum by widening our scope and dimension," says Samip Desai, National Manager, Moba Mobile Automation.
Says Vikram Mehta, Managing Director, Spartan Engineering, "Yes, the fall of the rupee has certainly impacted Spartan as it has done many other companies. We had already taken few steps; we have focused to manufacture machines and parts indigenously. Thus there will be minimal dependence on imports and the constant rupee rate fluctuations. We have initiated various protective actions by revamping the manufacturing processes at our Atgaon plant."
"Devaluation of the rupee v/s US dollar has had an impact on import of smaller equipment. Where the heavy tower cranes and high rise passenger hoists are concerned, the customer has to import irrespective of the exchange rate. So we have identified the exact segment to work through this tough time," says PV Ramdev, Managing Director, Everest Engineering Equipment.
According to Rajeev Kumar, Chief Executive Officer, Friends Equipment, the devaluation of the rupee has hit the importers badly. He says, "The cost of the equipment has been increased by 20 per cent without adding any new features to it. It's difficult to survive in this current situation but we are lucky enough to get some big orders from our major clients in India."
Vimal Shah, Chief Executive Officer, SAES says, "The market sentiments are not yet very good towards imported products as the cost has increased drastically. Our import content is marginal which has helped balance costs, so, as such the rupee downslide has had little impact on our cost. Several buyers are purchasing our products because of the value proposition. Our main advantage is our commitment and services which keeps us bound to our clients."
The recent recovery of the rupee against the USD has been a clear indication of the confidence in the economy. But then again, when the industry has been expecting a reduction in the repo rate by the RBI that could have signaled that the growth would be back on track, the repo rate was hiked. As the Wholesale Price Index (WPI) inflation figures have been trending upwards during the last three-four months, the RBI`s priority has been containing inflationary pressures, and as per experts views, this must have prompted the bank to hike the repo rate. However, industry will have to take the brunt of this rate hike, especially the infrastructure sector which is quite stressed at the moment. The industry is truly concerned about the policy rate hikes and their adverse impact on the investment sentiment. At a juncture when India needs huge investments in infrastructure and half of that is expected to come from the private sector, it has become difficult to foresee how the private sector will be able to mobilise resources from domestic sources.
In spite of the present slowdown and resultant sluggishness in the CE market, the long-term growth prospects are still intact and experts view the huge infrastructure deficit as a major growth driver and prudent steps from the government can bring India back on the growth trajectory. Rajesh Nath, Managing Director, VDMA sums up it up on a positive note: "Though the Indian industry has been witnessing a slowdown, it is still growing. With the depreciating rupee, exports will become lucrative for Indian equipment manufacturers. The slowdown should be utilised as an opportunity to review the process in the company. This can lead to positive results. Further, new markets and diversified opportunities should be looked into. Since business is always cyclical, it is important that the companies maintain a positive outlook and work towards implementing certain changes."
Prudent steps from the government can bring India back on the growth trajectory.