Construction equipment industry set to deliver

An analysis on current status, trends, challenges and forecast for construction equipment industry
 In a developing country like India which is building, designing, constructing every moment, construction equipment companies play a major role in the infrastructural and development progress of the country. Keeping pace with development, construction equipment companies are expanding their business and coming up with new technologies. Though they face challenges, there is a lot of scope for growth and development too.
Current statusThough the construction equipment industry  has gone through a challenging phase during the past couple of years, it has started witnessing some positive growth. With companies increasing sales and expanding market share, good rate of growth is expected. Sectors such as power, roads, ports, mining, building etc. are expected to give a boost to construction equipment industry.
Ajay Sambrani, CEO, Escorts Construction Equipment (ECE) says, “ECE performance is as per the plan. We have marginal growth in quarter one compared to same period last year. There have been a number of initiatives to rationalise fixed cost to align with de-growth of sector. We have maintained market share in material handling segment and gained in earth moving segment.”
Speaking on the current status Li Dongchun, Managing Director, LiuGong India Pvt Ltd says, “LiuGong experienced growth in sales, earnings, deliveries and order intake compared to the first quarter of 2014. The machine sales in second quarter increased to 28 per cent compared to first quarter. Further, there is a growth in sales of second quarter of 2014 to 30 per cent compared to the same quarter in 2013. Analysing the market, LiuGong holds a market share of 49 per cent in 5-tonne loaders segment in the past six months.”
Mr Sambrani observes, “The sector has seen de-growth from 2012-14 due to regulatory logjam and GDP growth. The sector will see positive traction from September onwards with key focus of new government on infrastructure segment.”
Upcoming trendsThe new trend in the construction equipment industry is for productive machines. Customers are looking for machines which provide productive value and are safer to operate. The market is becoming vast, thus companies have started providing services and expanding their distribution networks.
“The customer behaviour is fast changing who are looking at solutions and service moving away from traditional product focused industry. Customers are increasingly looking for safer and productive machines. Markets moving from urban to rural and it is important for all companies to leverage their distribution and service network,” Mr Sambrani says.
According to Mr Dongchun, “The Indian consumers have realised the importance of value proposition rather than money, thereby shifting the demand curve towards value driven products, more importantly quality services. On the supply front, the market has evolved on technology, product utility, variants and price fronts.”
He further adds, “Many institutional buyers are buying construction equipment on the basis of total cost of ownership (TCO) rather than just the upfront price, and also looking at equipment productivity, operators comfort and fitness for use. Customers seek equipment suitable for their application such as for road construction or port handling etc.”
ChallengesThough the construction equipment industry is growing but it has some major challenges like delays in projects, approvals, regulation norms, high interest rates etc. This results in financial costs of projects running high which is a major concern.
The construction equipment industry is facing pressures due to the delay in several national highway projects remaining stuck for want of clearances or funding and the tight liquidity position for overall execution on road projects, delays in land acquisition, removal of encroachments, shifting of utilities, receipts of approval and environment clearances. Mr Dongchun points out, “Many projects which were awarded over the last two years had been facing difficulty in achieving financial closure due to aggressive bidding, uncertainty on land acquisition, pending approvals, weak financial position of developers and increased risk aversion of banks.”
The industry is facing challenges on regulatory and environmental approvals. There has been a slowdown of infrastructure investments. “Due to the slowdown EPC companies balance sheets are under pressure. De-growth of sector resulting in excess capacity. Also interest rates have gone up,” Mr Sambrani observes.
Future visionWith the new government in power the country’s economic position is expected to improve. Also with new projects in mining sector, hydro power projects and the country’s infrastructural position set to improve the future of construction equipment looks bright.
According to Mr Dongchun, “The new government will drive the necessary changes to push the Indian economy to next level. We are expecting a change in the country’s economy, the government initiative to fast track various iron ore, limestone mining in Odhisa and Chattisgarh, hydro power projects in Arunachal Pradesh which attracts a staggering investment.” LiuGong is very optimistic on the future and expectedly change in India’s infrastructural sector and for a sustained growth phase in near future.
While Mr Sambrani says, “ECE will have double digit growth for 2013-14 financial year with financial turnaround. Growth is expected in the market share of safe cranes and backhoe loaders. We will look for expansion of distribution network.”
Benefits from EPCWith a number of big projects underway EPC companies are a preferred choice. Construction equipment companies will benefit a lot from the EPC companies coming into play for major projects as there are less chances of delays, waiting for approvals or project costs running high. Thus a faster rate of completion of projects.
Current growth scenario cannot support big highway projects typically developed in the PPP mode. There are no private equity funds which are willing to come in at this moment to take up these projects. There are no developments regarding many provisions which NHAI has proposed to improve financing conditions. Hence, NHAI now believes that projects can only be developed through the engineering, procurement and construction (EPC) mode.
Together with the Schedules, the proposed framework of the Model EPC Agreement incorporates international best practices and embodies an enabling contractual framework for construction of highways in an efficient, economical and competitive environment. Mr Sambrani feels, “It will minimise, if not eliminate, the time and cost over-runs characteristic of the extant item rate contracts. Further, this will enable a faster roll-out of projects with least costs and greater efficiency while minimising the potential for excessive discretion.”
——————–The Indian consumers have realised the importance of value proposition rather than money
Li Dongchun, Managing Director, LiuGong India Pvt Ltd———————–
—————-ECE will have double digit growth for 2013-14 financial year with financial turnaround.
Ajay Sambrani, CEO, Escorts Construction Equipment

8