Source: LiveMint.com, Jan 09, 2017
Mumbai: Fuelled by a pick-up in road projects, sales of construction equipment such as backhoe loaders, pick-n-carry cranes, earth moving machines and excavators, that had been depressed for a long time, rose to their highest in four years in 2016.
Overall volumes of such machines expanded 41.5% to an estimated 52,100 units in 2016 as compared to 36,800 units in the previous year, according to the Indian Construction Equipment Manufacturers’ Association (ICEMA).
Officials at construction equipment firms said, though the industry is still to reach the peak 2011 levels, the future looks promising. In a bid to ride the growth momentum, construction equipment firms are building manpower and technical capabilities as they enter newer segments and launch new products.
Vipin Sondhi, managing director and chief executive at JCB India Ltd, one of the largest construction equipment makers in India, attributed the high growth to the low base of the past four years. However, one sector where construction activity has intensified is roads and highways. “It has virtually been the single largest driver for the return of growth,” he said.
The total plan expenditure for key infrastructure-focused sectors grew at a muted compound annual growth rate (CAGR) of 1% during fiscal 2012-14 while it is expected at 21% CAGR during fiscal 2015-17, wrote Vijay Goel, an analyst at Karvy Stock Broking in a 3 January report. The key infrastructure-focused sectors like roads, highways and urban development have seen a significant increase in allocation post fiscal 2013-14 (42-44% CAGR during FY15-17E vs. 2-3% CAGR during FY12-14). Increase in investments in these sectors would drive the order inflows for construction companies, he said.
“We maintain our positive view on Indian construction sector as we believe that order inflows momentum to continue with the environment turning more conducive for execution of projects,” wrote Goel.
Except for the last two months, when sales were weighed down by the impact of demonetization, cumulative sales have been impressive at most companies. Others too have seen sales jump. Tata Hitachi Construction Machinery Co. Ltd saw its sales rise 48% to 4,800 units in the first nine months of the current fiscal, said Sandeep Singh, managing director at the firm.
Even a relatively smaller firm like Mahindra and Mahindra Ltd which entered the market only in 2011, is benefitting from the uptick in demand. “We have already surpassed last year’s volumes in the first nine months of the current fiscal year,” said Rajan Wadhera, president and chief executive, truck and powertrain business at Mahindra and Mahindra. It sold 728 units in the first nine months of the current fiscal against 654 units in the fiscal that ended in fiscal 2016.
Wadhera, the president-designate for Mahindra’s automotive sector, hopes the impact of demonetization will wear off in the months ahead and the industry which advanced merely 2% in December will grow at a faster pace.
The construction sector GDP is expected to grow at 2.9% in the current fiscal against an earlier estimated 3.9% owing to the likely adverse effect of demonetisation on the real estate sector involving residential and commercial properties, said CARE Ratings Research in a report.
JCB’s Sondhi said some states have done quite well with regard to irrigation projects and this augurs well. However, the industry also needs sectors such as urban development and railways to participate for the growth to be sustainable. Sondhi doesn’t see real estate—which was anyway sluggish and has now been further hit by the impact of demonetization—to revive any time soon.
Even as executives at all the firms believe the current high level of growth is not sustainable as it “has come from a vacuum”, they said 20-30% growth levels in construction equipment sales are sustainable. Encouraged by a good demand, all construction equipment firms are looking to diversify into newer segments, launch new products.
Mahindra plans to diversify its range of offerings and launch three new products in the next fiscal, in addition to introducing newer variants of the existing line-up, said Wadhera. JCB India, which launched 10 new products in 2016 is now looking to get into heavier tonnage machines.
All these machines will be made at its India factories and exported. India is an export hub for the UK-based firm. It shipped machines to 74 countries in 2016 up from seven in 2011. Tata Hitachi’s Singh said his company is looking to build upon its manpower and technical strength and add to the existing lineup of offerings.