Construction, infra will pick up in two months
Construction activities will normalise in the infrastructure sector in a couple of months with up to 80-90 per cent of operations, which is good enough to sustain in the present conditions. Sorab Agarwal, Executive Director, Action Construction Equipment, in an exclusive video interview, shares more on the current scenario.
The Indian construction equipment players have appealed to the government to postpone the implementation of the BS IV emission regulations which is scheduled for October this year. What is your thought on this?As per the plan, we have to go with the BS IV emission norms from the current BS III starting from October 1, 2020. Most of the construction equipment players have been working hard for the past one year to get their prototypes and approvals in place. Complying with BS IV norms will lead to a cost increase on the machine depending on the engine horsepower. The cost increase could be 5-7 per cent now which can go up to 12-15 per cent by October depending on the machine cost. So, there could be a substantial price increase. Unfortunately, these activities have been hampered right at their peak because of the lockdown in the aftermath of the Covid-19. Everything is getting postponed and delayed which is going to have a substantial cost impact. This is going to be a big burden for the end-users and accordingly the Indian Construction Equipment Manufacturers’ Association (ICEMA) has moved a request to the required channels and ministries in the government to delay this process of implementation by at least six months to one year in the interest of the buyers, so that they are not overburdened with the cost. I am sure that ICEMA and most of the manufacturers will leave no stone unturned to get these messages to the respective ministries so that right decisions at the turning point of the economy in the country should be taken in the interest of the users and infra development.
How do you look at the trend in steel price and its impact on the construction equipment market?For the construction equipment sector, the steel price can range anywhere between 30-35 per cent to 60-65 per cent of the cost of the raw materials. As the largest crane company in India, steel makes approximately 60 per cent of our total raw material cost. But when the steel prices are high, it means the economy is doing good, infrastructure sector is doing good, cranes are being sold to handle steel so the numbers are high, our revenues are high and we are able to make some profit. When the steel price is low, our profitability rather goes down.
How have been your exports in 2019-20?Our export revenue was 4-5 per cent of the total revenue last year and in the year just closed, we were able to achieve 6-7 per cent in exports. Going forward, the target is going to take a small hit for the next 3-6 months because most of the countries are affected by the slowdown. But I am sure that in the current level, we are going to attain a figure of 6-7 per cent in exports this year.
Many construction equipment companies are facing difficulties in sourcing components because they depend on China and other countries. What is the position of ACE in this regard?We do get some components from China, but in less numbers. These components are from the Japanese and European manufacturers who have manufacturing bases in China for the past 10-15 years. But for us, most of them have manufacturing set-ups outside China as well, like in Japan, South Korea and Europe.
Unfortunately most of Europe is also under lockdown. With respect to some key imported components, there is going to be a glitch but the good thing is that China has opened up again. Those companies having operations in China have started working and are open to delivery schedules.
We generally plan for 3-4 months with respect to imported components. So, hopefully we are not seeing problems for components in the near future.
Government has announced some relaxations after April 20 in the lockdown period. How do you look at this in reality?This is a good initiative as the government has given an opportunity to the infrastructure and construction segment which is one of the biggest job creators, especially to the unorganised side. Outside municipal limits, the construction can happen in full swing while in the municipal limits there is restriction with respect to labour movement. The contractors will have to manage with workers stationed at sites only as they cannot bring workers from outside. I feel that about 50-60 per cent of the work will start in the next one week after April 20, and by the first week of May, most of these sites will start functioning, though at a lower operational level. Within May, most of these sites will normalise which will be a very big factor in putting even the construction equipment industry back on track because that is where machines will start working and some more will be needed. Our manufacturing plants fall outside the municipal limits. So we are also contemplating to start basic operations around April 21, 2020 keeping all safety protocols intact. The demand would be reasonably muted for the first one month of operation. Overall, I think the infrastructure and construction activities will definitely pick up and in the next couple of months, things will normalise with up to 80-90 per cent of operations which is good enough to sustain in the present conditions. But construction in the real estate sector will take some time to recover due to the slowdown in buying properties in the current scenario.
How long do you think that we will be away from normal life?I think most of the pandemic related infections will be eliminated by this May if there is no relapse. But people will be skeptical about getting out and a lot of social distancing and other measures will continue. I feel that we are at least 3-4 months away with respect to complete normal life. With respect to the construction equipment industry, we have been set by at least three quarters if not more, to come back to normal.