Trends

Construction Equipment 600At a time when growth in major developed markets is saturated and China, the world's biggest market is headed for a slowdown, the global market for ECE is looking at India to generate new business. But competition will be tough with Indian OEMs fighting hard for market share with entrenched global majors.

After enduring stagnant demand for Earthmoving and Construction Equipment (ECE), last few years, the Indian market is now seeing buoyant demand. There are two major growth drivers for ECE in India now; adoption of modern construction methods, and the focus on modernizing India's creaking infrastructure to global norms. And both these factors are underpinned by the current economic turnaround, which is providing the powerful impetus required to sustain this boom in demand. After a prolonged recession ECE OEMs in the construction sector will finally expect robust demand in the near future for machines across product verticals and the price spectrum. The strategic differentiator for winning players will be aftermarket services like MRO, rentals, and equipment finance.

Robust demand

Till recently construction activity in India used traditional methods which were slow and archaic. Now, gearing up to the new reality of timely project execution, which is emerging a major imperative loaded with stiff penalties, there is an increasing adoption of modernized, mechanized, methods of construction to ensure timely delivery of a project. There is also a new emphasis on quality of construction. All these imperatives require use of modern machines, and in ECE there is a wide spectrum of product verticals which will see huge demand now. These range from off-highway vehicles, to lifting equipment like cranes-hoists-AWPs, to crushing and screening plants, excavators, drilling and piling rigs, all types of batching plants, road equipment like compact vibratory rollers, pavers, asphalting machines, etc. Major demand for machines will be driven by three sectors; construction, infrastructure, and mining.

According to a report 'Building India's Earthmoving and Construction Equipment Industry' published by Consultant AT Kearney, commissioned by the ICEMA (Indian Construction Equipment Manufacturers Association), India's infrastructure spending could result in a $ 16-21 billion ECE industry by 2020. The Indian market for ECE will grow at a substantial CAGR of 20-25 per cent over the next few years, from FY13-14 levels of about 48,000 units.

According to Planning Commission estimates, India's mining sector will see about $ 15 billion invested up to FY 17. Consequently it has projected mining equipment demand of about $ 600 million by FY 17. Mining equipment encompasses a large gamut of equipment such as rope shovels, motor graders, rotary drills, large excavators, surface miners, long wall equipment, dragliners, continuous miners, dumpers, dozers, etc. According to a report by Research & Markets, 'Strategic Outlook for Construction and Mining Equipment Market in India,' the total demand for select construction and mining equipment market in India was found to be 105,811 units in FY2013. The market for new ECE is likely to grow at a CAGR of 9.6 per cent to 166,876 units in FY2018. Large allocations by government to public projects such as NHDP, Metro, and BRTS in India and strong emphasis on construction and real estate are likely to push demand for construction and mining equipment. Government projects would account for 80 per cent of the total demand, the report says.

Earthmoving equipment is the biggest segment value wise within the ECE group, and the single biggest share therein is of excavators, followed by backhoe loaders, wheeled loaders, skid steer loaders, dumpers-tippers, etc. According to research consultancy Off-Highway Research, "Within the Indian construction equipment industry, the crawler excavator segment is the largest by value and the second largest in terms of number of units sold after the backhoe loaders." It is also projected to be the fastest growing equipment type in the future. Major players in the excavator and loaders segment include Caterpillar, JCB, Volvo CE, Hyundai, Komatsu, Kobelco, Kubota, Sany, Liugong, Doosan Infracore, Terex, Leyland Deere, etc. Among Indian companies major players include, Bharat Earth Movers Ltd, Escorts Construction Equipment Ltd., etc. However Tata Hitachi dominates the excavator segment. In the dumper and tipper truck segment major players include, Daimler India Commercial Vehicles (DICV), Volvo Trucks, Scania, Mahindra & Mahindra Ltd, Tata Motors, AMW, etc.

Lifting equipment is another major segment which is quite mature on both sides, Demand and Supply. As end users demand equipment for niche applications in newer areas manufacturers are offering them customized end-to-end solutions. Also the demand for most capacities will grow since the demand ranges from residential construction sites which need small capacities, to bigger sizes being demanded by infrastructure mega projects like power plants, dams, irrigation, road and rail transport etc. However, the biggest demand driver for lifting equipment -- lifts, hoists, and cranes, is the increasing pace of mechanization in all areas of construction in India, where the speed of construction has become a pressing need to ensure timely project execution. Major global brands include Liebherr, Manitowoc, JCB, Terex-Genie, Houlette, Sany, Hyundai, etc. Among Indian companies, ElectroMech is a major player, other entrenched players include, Escorts Construction Equipment, Spartan, ACE, etc.

Batching plants are another segment where demand will be robust, which include concrete and asphalt batching plants. Demand for both these types will be fuelled majorly by road construction projects, infra projects, and real estate projects. Global players like Linnhoff, Wirtgen, and Amman Apollo, offer the entire range of plants. And the latter two offer the whole range of machines for the road construction sector. Among Indian companies major players include Cosmos Construction Machineries & Equipment, Akona Engineering, Aquarius Engineers , Universal Construction Machinery & Equipment, KYB-CONMAT etc. Demand will be buoyant for both, stationary and mobile plants.

Crushing & Screening plants will also see a rise in demand concomitant to the demand for aggregates, which will be fuelled by almost all demand verticals ranging from roads and rail, to EPC projects to the real estate sector. Global players in India include Wirtgen's Kleemann range of crushing and screening equipment, Powerscreen, Sandvik, etc.
Concreting equipment is another segment where demand will rise in proportion to rapid urbanization across India in Tier II and Tier III cities. Most of it will comprise of mobile batching plants, transit mixers ,and concrete boom pumps. Liebherr, Ajax Fiori, Schwing Stetter, etc are present in the first two product verticals and Putzmeister has niche competence in the pumps and placement booms segment.

Apart from these major equipment verticals there will be plenty of demand for other types of equipment like making ACC products, and also prefab segment in the real estate sector will generate major demand for prefab manufacturing plants producing prefabricated concrete products. 

Low penetration

While all these product verticals will generate substantial demand, it still needs to be viewed in the context of the very low penetration of construction equipment demand in India compared to global standards. By global standards the Indian market is still very miniscule but very much latent will robust demand which will rise as the turnaround in the construction and infra sectors happens.

Also the equipment rental market is poised to grow substantially on the back of fast track clearance of EPC mega projects. Market share of rentals is projected at 16 per cent by 2015. The market for Rental, Leasing, and used-equipment is still very nascent needs to be developed. Equipment finance is another latent market with immense potential, but its growth is currently constricted by RBI norms for equipment financing by NBFC's which include equipment financing companies. This needs to be developed into robust market because there's a huge volume of small and medium contractors at the 'bottom of the pyramid,' waiting to be tapped, they need costly equipment and machinery to execute projects but don’t have funds to them.

Global hub

India has already emerged a global manufacturing hub for many global OEMs. Caterpillar, JCB and Volvo are already using their manufacturing base here to supply the global market. And all equipment OEMs, global and Indian brands, export to the regional markets in Asia and other emerging markets in Africa. The manufacturing ecology is fully developed in India to the extent that India is now a global ESO (Engineering Services Outsourcing) hub and has a matured vendor base of Tier II and Tier III suppliers. This is a spill out of India's dominance in the auto ancillaries segment, many Indian vendors supply global brands and some have won the coveted Deming Award for manufacturing excellence. Riding in the first wave of the turnaround, construction equipment will be at the forefront of the action to develop India's infrastructure to global norms.

 

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