An in-depth analysis on the recent performance of CE industry in India and the road ahead for CE manufactures.
The infrastructure sector is one of the major growth drivers of the Indian economy and thus, hold immense importance in the overall growth of the country. As per the Planning Commission estimates total infrastructure spending to be about 10 per cent of GDP during the current Five-Year Plan, up from 7.6 per cent during the previous plan through multiple road and rail projects as Bharat Mala, Sagar Mala, Freight Corridor among others.
At present, road construction is growing at a significant rate. In the FY18, highway construction has hit a record high 10,000 km. According to Ajay Aneja, Brand Leader, CASE India, “Infrastructure development has always been a priority for the government. In the 2017 budget, the government had increased the total allocation in the infrastructure sector by over 10 per cent. In the budget 2018, the government has recognised several road projects along the international inland territorial borders of India under the ambitious Bharat Mala project. This, in addition to the work being executed by the Border Roads Organisation, will help build road infrastructure in these areas at a rapid pace.”
Investment in infrastructure, road and building construction are the main growth drivers for the construction equipment industry. Jasmeet Singh, Head – Corporate Communications and External Relations, JCB India Ltd, adds, “The government has made concerted efforts in the past three years through various policy reforms, programmes, and budget announcements that have played a key role in the revival of the infrastructure sector and the earthmoving and construction equipment (ECE) industry.”
The roads and highways sector has been one of the major demand drivers for the ECE industry. Other sectors such as railways, airports, inland waterways etc. are also integral in driving the growth. However, Jasmeet believes, more needs to be done in these sectors to ensure sustainable growth. He adds, “Irrigation, Real Estate, and Mining are few other sectors that have to start progressing to make the demand sustainable.”
Talking about the recent performance of construction equipment (CE) industry in India, Sharwan Agnihotri, Head – Marketing & Business Development, Hyundai Construction Equipment India, said, “The CE industry in India is witnessing excellent growth for last 2 years and the recent announcement of projects in roads, mining, airports, irrigation etc give us confidence about the bright prospects of the sector for next 3 to 5 years. Excavator industry has grown by around 45 per cent in 2016 over the same period in 2015, the growth of the industry has been around 20 per cent in 2017 over 2016. The first quarter of 2018 has registered a growth of around 30 per cent over the same period in 2017. The pace of growth is much faster than the industry estimates and hence has disturbed the complete supply chain for excavator segment of CE industry. Most of the manufacturers are now geared up for ensuring availability of machines and have re-started the plans for investment in capacity enhancement.”
Manish Arora, Business Head, Mahindra Construction Equipment also opines, “With infrastructure investments set to go up, demand for construction equipment is expected to rise and the equipment sales are estimated to expand at a CAGR of 6.2 per cent.” Being recent entrant into the industry, Mahindra Construction Equipment intends to capitalise on this growth by providing best-in-class products that offer customer sustainable profitability over the life cycle in the categories starved with innovation. Arora further observes, “The overall Indian construction equipment market is expected to grow by a healthy 20-25 per cent over the next few years to reach 330,000 from current levels of about 76,000 units.”
According to Arora, financial year 2017-18 has been particularly good for both industry as well as Mahindra Construction Equipment. He further informs, “Riding the industry tide, we grew by 20 per cent in the Backhoe Loader Segment and withheld the 4th position. Our recently launched new category creating product Mahindra RoadMaster G75, motor grader also captured 25 per cent market share within 6 months of the launch.”
Challenges & the road ahead
CE industry faces unique challenge of managing currency fluctuation, key components of various machines like hydraulic assemblies and engines are imported from Japan, Korea, China and other countries. This fluctuation coupled with increase of steel price in domestic market poses big challenge for manufacturers, points out Agnihotri of Hyundai CE India. He adds, “Manufacturers have excess capacity and the demand of machines is mainly driven by roads. This single application-based demand is skewing complete product portfolio towards specific set of machines which is creating a scenario of excess machines of certain class and shortage of some other class of machines.”
The industry anticipates that the stabilisation of currency and announcement of new projects in other sectors like railways, port, waterways and real estate would help manufacturers to spread the cost and improve profitability.
Arora of Mahindra Construction Equipment also expects that the operating profit margins of CE manufacturers will witness steady growth over the next couple of years. He said, “The current industry indicators are portraying that the CE manufacturers will witness steady growth over the next couple of years.”
In 2018, the overall industry in India is expected to grow. In 2017, Backhoe Loader segment grew nearly by 10 per cent and other segments like road and infrastructure grew by 20 per cent. The industry expects similar levels of growth in 2018. GST should now facilitate the growth after it being reduced to 18 per cent, suggests Aneja of CASE India.
Jasmeet of JCB India said, “With the government’s move to cut GST rates on construction equipment from 28 per cent to 18 per cent has resulted in unprecedented demand in India over the last five months making the ECE industry ready for another record year where the global sales may cross the one-million-unit mark.
Govt has made concerted efforts in the past three years through various policy reforms, programmes, and budget announcements that have played a key role in the revival of the infrastructure sector and the ECE industry.
Jasmeet Singh, Head – Corp Comm and External Relations, JCB India Ltd
GST should now facilitate the growth after it being reduced to 18%.
Ajay Aneja, Brand Leader, CASE India
Most of the manufacturers are now geared up for ensuring availability of machines and have re-started the plans for investment in capacity enhancement.
Sharwan Agnihotri, Head – Marketing & Business Development, Hyundai Construction Equipment India
The current industry indicators are portraying that the CE manufacturers will witness steady growth over the next couple of years.
Manish Arora, Business Head, Mahindra Construction Equipment