Charu Bahri discovers what buyers look for when choosing earthmoving equipment and how vendors expect markets to move.
The $5.1 billion market for construction equipment is expected to register a CAGR of 12 per cent in the coming three years. When the overall outlook for construction equipment is bright, the frontrunner is bound to do well. Earthmoving equipment constitutes more than 50 per cent of the market for construction equipment followed by material handling equipment with a nearly 25-per-cent share of the pie. So, how has the market for earthmoving equipment actually moved?
Six months’ outlook
“India has been doing very well since the start of this year,” says Amit Gossain, Vice-President, Marketing & Business Development, JCB India. “We expect a steady monthly growth over the next six months to support critical infrastructure projects across all sectors.” According to Anil Sachdev, Vice-President, Salgaocar Engineers Pvt Ltd, “Infrastructure development, whether it is roads, hydroelectric, ports, airport modernisation and metro projects, is progressing as directed by the Planning Commission. A number of private foreign companies have also entered the mines sector because of which we expect the demand for equipment used in mines to rise in coming months. We expect an increase of 15 to 30 per cent in the sale of earthmoving equipment after the monsoon.”
“We see great potential and opportunity in the next six months, especially in the mining, road and construction segments,” says GVR Murthy, Joint Managing Director, TIPL, a 100 per cent subsidiary of TIL. ‘The goal to construct close to 20 km a day compared to the current 13 km a day holds much promise. The mining segment is equally bullish and will do well provided that the debate on environmental issues is quickly resolved. In general, the economy has shown renewed confidence.” For his part, Milind M Shahane, Executive Vice-President & COO, Engineering Products Business Group, Voltas, says, “We expect the market for earthmoving equipment to grow over the next few years as companies like Coal India and its subsidiaries, like Tata Steel, ESSAR and Reliance, have projects in coal, iron ore and other sectors that would require many such machines.”
The coming year(s)
Volvo CE’s significantly improved second quarter 2010 financial results indicate that the global construction equipment industry is recovering faster than predicted earlier. This healthy growth is being strongly driven by the BRIC markets – Brazil, Russia, India and China – which increased by 63 per cent during the quarter, significantly higher than the total world market for heavy, compact and road equipment which increased by 43 per cent (quarter-on-quarter growth). Estimating the outlook for the year, AM Muralidharan, Managing Director, Volvo India, opines, “The growth is expected to be around 40 to 45 per cent over last year.”
Looking forward, Dinesh Nain, Head – Marketing, Terex Equipment Pvt Ltd, estimates, “We are quite confident that the Indian construction equipment market will grow by at least 10 - 15 per cent on an annual basis in the next five to seven years. This is on the basis of renewed economic activity around the country and the focus on nearly all kinds of infrastructure development.”
Nevertheless, Nain feels that there is an urgent need for a strong push from the Indian Government to support the construction equipment industry. “For instance, imported machinery can easily be registered by RTOs anywhere in India, there is no need for testing at state-level transport authorities in different states, while machinery manufactured in India has to be tested as well as registered – this does not provide a level-playing field for the Indian manufacturers,” he points out. “Another factor is the availability of Chinese imported machinery at very cheap prices compared to what is manufactured in India. Also, as construction equipment is mobile and transported to different locations countrywide depending on requirement, it would help to have uniform taxation (VAT, entry taxes, oct-rois, local lev-ies]) structures in different states as well as similar entry permit and RTO rules.” To this, Murthy adds, “It is up to the government to ensure that it offers a level playing and enabling environment to catalyse growth.”
Competition revs up
The expansion in demand for earthmoving equipment has attracted a number of leading global brands to India—a welcome move indeed. “The entry of new multinational vendors of earthmoving and especially heavy construction equipment bodes well for the industry and the overall quality of sales and service,” says CS Sethi, Managing Director, C&C Constructions Ltd.
Some brands have moved on from being imported and selling through a dealer network by establishing manufacturing facilities. “LiuGong products have been sold and serviced in India since January 2003,” points out Sachdev. “Having tested Indian waters, so to speak, LiuGong established its India office in New Delhi, a warehouse for spare parts in Chennai four years later, and have now set up a factory in Indore.” Indeed, Volvo CE’s recent announcement of a Rs 90 crore investment in a new excavator manufacturing facility in Bengaluru shows its positive outlook for sales of earthmoving equipment.
First-mover advantages
JCB India has been around since 1979. Its long presence and established dealer network accentuates its brand recall as well as helps it understand the nuances of the Indian market. “We were upbeat about the future prospects of the industry even during the downturn,” says Gossain. “We invested Rs 300 crore to expand our backhoe loader factory during the slowdown and, as a result, we are now ready for the upswing that we expect to continue for some time.”
First-mover advantages include garnering prestigious clients that were active in the construction and infrastructure development market since before the boom of the last decade. “JCB was one of the first few global manufacturers to produce backhoe equipment in India,” shares BV Raisinghani, Senior Joint President (Purchase), Jaiprakash Associates Ltd. “We have been using their backhoes and wheel loaders and find their performance and after-sales services satisfactory. More recently, we’ve tried their 20 tonne excavator. We also use equipment from well-established vendors such as Komatsu, Caterpillar, Hitachi, Telcon and L&T.”
TIL India also has had the advantage of time on its side. “Our association with Caterpillar dates back more than six decades,” Murthy tells us. “While the brand CAT is well accepted with its strong credentials and performance, we ensure that the equipment is backed up with innovative and pre-emptive service and support solutions. We have introduced rentals and used equipment solutions, customer support agreements (CSA), maintenance and repair contracts (MARC), component rebuild and scheduled oil sampling services (SOS) to help our clients. We have also recently commissioned a 50,000 sq ft, state-of-the-art Component Rebuild Centre (CRC) to provide major component rebuilds that offer quality repair, fast turnaround and maximum value. The size and capacity of the CRC has been designed to meet the present and future needs of the market, and serve customers by reducing owning and operating costs as well as downtime of machines.”
Nevertheless, newer players are steadily making inroads into the market. “LiuGong’s maximum selling product is their 5 tonne (CLG 856) wheel loader,’ shares Sachdev. “More recently, however, they have also penetrated the 3 tonne loader (CLG 835) market that was earlier dominated by CAT model HM2021 and JCB model 430Z. Liugong’s excavators and motor grades are also becoming popular.”
Buyers’ preferences
What other factors influence choices of equipment? Interestingly, the reasons differ from buyer to buyer.
“We prefer Caterpillar equipment because their resale value is higher than others and their engine works longer hours than competitors,” says Sethi. “Caterpillar has also appointed a large agency, TIL Ltd, which has enough capital to stock spares and offer timely service that is better than others. When you have a fleet of 450 pieces of equipment, service is a major issue.”
“We look for the strength of backup services and Caterpillar is recognised in the market for this aspect,” opines Shankar Srivastava, Vice-President – Equipment, Hindustan Construction Company Ltd. He also brings up the need for vendors to promote new technologies. “Caterpillar has a voluminous catalogue to choose from and is willing to bring whatever India demands to the market,” he adds. “That makes a difference.”
According to Nagesh Singh, Director, Peartree Enterprises Pvt Ltd, “Contractors are most concerned about using equipment that minimises downtime. Every running machine is bound to break down at some point in time. That’s understandable. But we expect swift after-sales services, which we have received from Terex Equipment.” For this reason, Singh suggests evaluating the efficacy of the dealers’ network, particularly in the regions a contractor is engaged in, prior to making the crucial decision to buy certain equipment.
Comparing costs and features
“Cost matters too, especially if you’re looking to buy 13 backhoes in one go as we did,” adds Singh. “We opted for Terex, after having experienced the quality of after-sales services of JCB, Caterpillar and L&T Case.”
“Cost is undoubtedly a decider,” opines Mangal Singh Rathore, Chief Executive, Sainik Mining and Allied Services Ltd, Talcher site. “We own about 40 LiuGong wheel loaders that we’ve bought over the past six years for our wagon loading and surface coal mining. We have set up our own service facilities closer to our sites. In our perspective, buyers don’t go so much by features as most comparable machines offer similar facilities. But LiuGong loaders work out to about half the cost of comparative machines from other vendors, which clinched it for us.”
So do features figure in buyers’ decisions at all? “Not really, as the primary features of similar products from competitors are by and large on a par,” points out Srivastava. Even so, Singh opines that features matter from the perspective of costing. “We compare similar machines from different vendors for their engine, hydraulic system and torque to determine which machine offers the most output per hour. We prepare comparative running cost and output estimates for running a machine for about 16 hours a day.”
When it comes to owning and operating a fleet of earthmoving equipment, make your calculations and choose right!"
“We expect a steady monthly growth over the next six months to support critical infrastructure projects.”- Amit Gossain, Vice-President, Marketing & Business Development, JCB INDIA
“We expect an increase of 15 to 30 per cent in the sale of earthmoving equipment after the monsoon.”- Anil Sachdev, Vice-President, SALGAOCAR ENGINEERS PVT LTD
“It is up to the government to ensure that it offers a level playing and enabling environment to catalyse growth.”- GVR Murthy, Joint Managing Director, TIPL
“We expect the market for earthmoving equipment to grow over the next few years.”- Milind M Shahane, Executive Vice-President & COO, Engineering Products Business Group, VOLTAS
“The growth is expected to be around 40 to 45 per cent over last year.” - AM Muralidharan, Managing Director, VOLVO INDIA
"The Indian market will grow by at least 10 to 15 per cent on an annual basis in the next seven years.”- Dinesh Nain, Head - Marketing, TEREX EQUIPMENT PVT LTD
“The entry of multinational vendors of earthmoving and heavy equipment bodes well for the industry.”- CS Sethi, Managing Director, C&C CONSTRUCTION LTD
Quick Bytes:
• Earthmoving equipment constitutes more than 50 per cent of the CE market.
• The expansion in its demand has attracted a number of global brands.
• Great opportunity is expected in the next six months, especially in the mining, road and construction segments.
• An increase of 15 to 30 per cent in the sale is expected after the monsoon.
