Expanding Earth, But Gaps Remain
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Expanding Earth, But Gaps Remain

01 Mar 2017 Long Read
Road construction fuels demand for a burgeoning variety of earthmoving machines but buyers still feel the lack of certain products and services.

Construction equipment recorded a 28 per cent increase in sales in 2016 while the earthmoving segment witnessed faster-paced growth as a result of expansion in certain infrastructure segments.

´Graders saw 60 per cent growth while compactors enjoyed 35 per cent expansion over 2016,´ says Nischal Mehrotra, Director (Sales & Service), Liugong India. ´We increased our market share in the wheel loader segment from 13 per cent to 20 per cent on the back of buoyant demand.´

´Demand for backhoe loaders grew 40 per cent, wheel loaders 5 per cent and excavators 50 per cent in 2016 compared to 2015, as per published industry data, chiefly on the back of road and irrigation projects,´ says Amit Bansal, Sales and Marketing Head, India Region, Building Construction Products, Caterpillar India.

Growth returned to the industry after a long lull. ´The year 2016 saw growth return to the construction equipment industry after four years, with the industry growing at over 40 per cent compared to 2015,´ affirms Vipin Sondhi, Managing Director & CEO, JCB India. ´Roads and highways have been a major contributor to this revival, and after a positive budget announcement, we expect sustained demand.´

´New highway construction and existing highway widening witnessed about 10 per cent growth in H1FY 17 whereas power generation saw a little over 6 per cent growth and rail freight traffic recorded about 2 per cent growth as per the recent economic survey,´ says Ajay Aneja, National Sales Head, CASE India.

Key drivers
With the Budget out early, vendors have a good idea of sectors to look out for in the coming months.´

´As road, railway and port construction projects continue to be tabled, as a result of this year´s Budget´s record Rs 3.96 lakh crore for infrastructure, we are expecting high demand for construction equipment,´ says Sanu George, Head, SDLG, India.

´With the 2017 Union Budget pressing key buttons necessary to bolster overall development, now other than roads and highways, attention has been paid to sectors like railways, agriculture and real estate, with emphasis on affordable housing,´ says Sondhi. ´Record allocations of Rs 3.96 lakh crore in infrastructure and Rs 1.31 lakh crore in railways are steps in the right direction. With rural roads also receiving the desired focus, we look forward to the growth momentum being sustained.´

´Road projects across the country - both those already awarded as they get off the ground and newly awarded - will generate the most demand for earthmoving machines in FY18; housing will take another six to seven months to recover,´ says Mehrotra. ´In mining, we expected coal mining to generate opportunities but it appears as though these will kick off only post elections; so far, awarded projects are not generating any orders.´

´Infrastructure was at the forefront of the Budget, with a 10 per cent higher allocation than FY17 and the outlay for roads and highways up to Rs 64,900 crore from Rs 52,447 crore,´ observes Aneja. ´With this, industry sentiment is becoming even more positive, interest from international investors is growing and the long term looks promising. We are optimistic about seeing demand from fresh tenders for road projects, especially with customs and excise duties cut on machinery and component parts.´

´Higher allocations for infrastructure and roads in the FY18 Budget compared to the previous year´s budgeted and revised estimates, Rs 396,135 crore and Rs 67,000 crore respectively, and plans to construct 2,000 km of coastal connectivity roads could result in fresh tenders for road projects,´ says Bansal.

Bigger is better, sometimes
Industry reports suggest that oil and coal companies are demanding larger, high-capacity mining machinery to increase output by enhancing recovery rates. ´In mining, generally speaking, customers are looking for higher-capacity equipment, although within India we only offer wheel loaders from SDLG up to 5 tonne, thus catering to a limited market,´ says George.

´As part of the natural ongoing progression towards the deployment of larger-sized, higher-capacity construction equipment, the industry could see greater demand for larger-capacity, technically superior earthmoving equipment across the value chain to help realise plans to increase the highway construction rate from 27-28 km per day to 41 km per day this year, and further thereafter, helping companies execute time-bound projects in good time and furthering growth,´ says Bansal.

´Whereas companies operating crushers with output greater than 200 tph per hour used to work with two loaders of 3 tonne each, they now prefer to use a 5-tonne machine,´ says Mehrotra. ´In 2016, we launched a next-generation, 5-tonne wheel loader to cater to their growing demand, the 856H model featuring a Liugong Cummins electronic engine, variable displacement pump, different power modes and Trimble software with GPS to track the machine´s whereabouts.´ To make the most of the demand for workhorses and better fulfil the needs of existing users of wheel loaders, typically crusher owners operating stone quarries and road contractors, Liugong launched two heavy duty excavators in 2016: The 922D and the 936E.

Rather than capacity, Indian customers are productivity-conscious, wherein they try to maximise the value from a given asset, according to Aneja. ´In terms of absolute values, the customers tend to play in the medium segment of machine capacity, and then use those for medium to heavy application.´

The China factor: Pro or con?
Chinese equipment vendors enjoy a strong position in the wheel loader and dozer segment, mostly from being very price competitive. In fact, they are known to compel price cuts by domestic equipment manufacturers.

´Chinese machines, whether manufactured in India or imported, are here to stay,´ says Rajinder Raina, General Manager, Marketing, Escorts Construction Equipment. ´India has always been a price-sensitive market on top of which Chinese machines will accentuate the pressure on prices in their served segment.´ ´Usually, cost compulsions compel contractors to buy Chinese earthmoving equipment,´ opines Subhash Chand Verma, General Manager, Plant & Machinery, IL&FS ECC.

The price advantage of Chinese equipment comes from the sheer volume of equipment manufacturing in China. ´Wheel loaders constitute one of the dominant segments of construction equipment in China, having clocked more than 125,000 units consecutively for many years in the past versus the Indian annual market for 300 units,´ notes Raina.

´Liugong´s low prices are an outcome of high volumes; contrast the 60,000 pieces of equipment Liugong made in 2016 to the size of the overall Indian construction equipment market - 70,000 units per annum,´ points out Mehrotra. Also, Liugong has entered into JVs with Zetor for manufacturing loader axles and transmissions, and with Cummins for engines. ´Manufacturing the main parts of the loader in house helps bring down cost,´ adds Mehrotra.

Growth in 2016: Graders 60%; compactors 35%; backhoe loaders 40%; wheel loaders 5%; and excavators 50%.
Road projects to generate maximum demand for earthmoving machines.
Positive industry sentiment and growing interest from international investors.

The Northeast Beckons
While road construction opportunities are arising across the country, projects in the Northeast have come into focus of late because the Government is prioritising this region for strategic reasons - to tap its natural resources and improve the economic prospects of the far-flung populations who have increasingly been migrating out. ´Infrastructure development in the Northeast is high on the government´s agenda, both the construction of greenfield roads and widening and modernisation of existing ones,´ agrees Rajinder Raina, General Manager, Marketing, Escorts Construction Equipment.

Accordingly, the ministry has adopted the construction company-preferred EPC mode of contract for major proposed works. The National Highways & Infrastructure Development Corporation (NHIDCL) has been entrusted with capacity augmentation of agencies involved in national highway development and maintenance in the region.

Opportunities include 4,884 km of new roads under the Special Accelerated Road Development Programme in the Northeast, approved by the incumbent government in its first two years. Recently, the Ministry of Defence has cleared a strategic 2,000-km highway connecting Tawang in western Arunachal Pradesh with Vijaynagar in the east, after tweaking the alignment of the road as required by the Army.

´A 400-km road connecting Aizwal and Tuipang in Mizoram, a 150-km highway in Meghalaya and a highway project each in Manipur, Nagaland and Tripura are part of the Rs 6,000 crore outlay,´ says Raina, noting that a road network of 1,000 km will be executed through soft loans from the Japanese International Cooperative Agency and Asian Development Bank, through the NHIDCL. In fact, Japan has pledged Rs 67.1 billion for projects, including NH-40 and NH-55 that connect with neighbouring countries.

Rail development projects in the region will also boost demand for equipment, according to industry sources.

Missing: Earthmoving Equipment for Rural Roads
The earthmoving equipment segment is skewed towards the construction of highways, to the detriment of contractors implementing projects for interior roads of 3.75-m width.

´All the leading vendors offer graders with a 12-ft blade, which is too wide for working on Pradhan Mantri Grameen Sadak Yojna projects, leading to wastage,´ says E Praveen Kumar, In Charge, SS Alur Construction Company, a Karnataka-based contractor with a fleet of 280 pieces of equipment. ´Ideally, we need graders with a 10-ft blade. We could also use loaders with a hopper-like accessory instead of a bucket, and transit millers of capacity of 2 cu m.´

After-sales Services still an Issue ´When we buy a new machine, we expect at least 5,000 hours of trouble-free working, apart from regular service stoppages,´ says Subhash Chand Verma, General Manager, Plant & Machinery, IL&FS ECC. ´Second, we expect timely after-sales services.´

After-sales services are still an issue with too few equipment maintenance engineers stationed outside major metros and such towns and cities having no or barely any spares inventory, says Verma.

Centrally-controlled troubleshooting such as Caterpillar offers is desirable, as it helps cut short the downtime.

´If upfront cost was not a concern, we would prefer Tata Hitachi and Komatsu machines,´ he adds. ´We have had sorry experiences with China-made earthmoving equipment because of the poor metallurgy of those machines, practically non-existent after-sales services and expensive spares.´

´Highway construction and widening works witnessed about 10% growth in H1 FY17.´ - Ajay Aneja, National Sales Head, CASE India

´2016 saw growth return to the construction equipment industry after four years.´ - Vipin Sondhi, Managing Director & CEO, JCB India

´Manufacturing the main parts of the loader in house helps bring down cost.´ - Nischal Mehrotra, Director (Sales & Service), Liugong India

´Chinese machines, manufactured in India or imported, are here to stay.´ - Rajinder Raina, General Manager, Marketing, Escorts Construction Equipment

´Plans to construct 2,000 km coastal roads could result in fresh tenders.´ - Amit Bansal, Sales and Marketing Head, India Region, Building Construction Products, Caterpillar India

´We are expecting high demand for construction equipment.´ - Sanu George, Head, SDLG, India

- Charu Bahri

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