15 November 2018

Industry Focus- Off Highway Equipment

Getting on track

 

As India spends a trillion dollar budget to modernise its creaking infrastructure, there is a concomitant surge in demand for construction and earthmoving equipment. Off-highway equipment industry is on a roll, thanks to fast paced developmental activities taking place in the country. The two major sectors fuelling demand are infrastructure and mining. While it’s going to be a while till mining activity picks up, infra is already churning up demand. And the biggest segment here is off highway, which is leading the pack among all construction equipment verticals in the Indian market. reports Rohan Ambike.

 

A fast track rollout of projects across infra verticals ranging from power to water, and across transport verticals ranging from roads, ports, and airports, and urban transport infra, are spawning huge demand for off highway equipment. Irrespective of the infra vertical, all these projects will need off highway equipment to prepare the ground for any project. Off highway equipment ranging from excavators, off highway loaders, off highway cranes, and tipper trucks will be required to execute all construction projects. With an aim to acquire this propitious realm, most of the leading global MNCs have either set up base or are planning to be keys players in India.

 

 

Market scenario

 

According to the Mid-Year Review from Off-Highway Research’s Indian Service, sales of earthmoving, road building and materials handling equipment, along with portable compressors, should reach 90,115 units this year. That would represent a 15 per cent increase on the 78,109 machines sold in 2017 and a near doubling of the market since the trough of 2014 and 2015.

 

The previous peak in construction equipment sales was 72,492 units in 2011, so demand in India had already surpassed that by the end of 2017. The robust growth and recent record demand has been largely due to the Modi Government’s efforts to speed up the pace of infrastructure development. Given that India has an infra-deficit and needs about $7 trillion over the next 7 years, this would itself trigger a construction equipment (CE) business of around $180-200 billion at the current rate of equipment penetration over the next 10 years. For every 0.5 percent increase in mechanization, the CE demand would rise by $30-35 billion.

 

 

 

Financing

 

Original equipment manufacturers (OEMs) in India offer limited financing options, and payment terms for first-time users are often unfavorable. The result is that access to financing prevents many prospective users from buying. Renting is a good option for users with an eye on limiting their large capital expenditures. However, renting penetration in India is much lower than in other large ECE markets (65 per cent in the United States and 35 per cent in China) because of a tax regime that makes moving equipment across states unviable. India's secondary market for used equipment is underdeveloped.

 

 

 

Availability of skilled manpower

 

As the ECE industry continues to grow, so does the need for trained operators and mechanics. Availability of skilled workers is a concern that needs to addressed urgently. Multiple entities from the government, ECE companies, and industries are working to solve this deficit of skill. But this calls for a coordination among these agencies. Most construction-equipment users are small players who are unwilling to pay for qualified workers and prefer on-the-job training for operators & mechanics.

 

 

 

Components

 

This is a problem faced by nearly every industry having major MNC shares. Companies rely heavily on the import of high-end components. Insufficient technology and a lack of state-of-the-art manufacturing facility are factors that mar dynamics in the industry. In addition to this hurdle, suppliers face constrain for operating margins because of a very price and value conscious market. Hopefully, matters will take a more positive turn with platforms like 'Make in India' and the government’s measures to attract foreign investors.

 

As per a report by IBEF , the infrastructure sector has become the biggest focus area of the Government of India. Under Union Budget 2018-19, US$ 92.22 billion was allocated to the sector. The report says, Increased impetus to develop infrastructure in the country is attracting both domestic and international players. Private sector is emerging as a key player across various infrastructure segments, ranging from roads and communications to power and airports. In order to boost the construction of buildings in the country, the Government of India has decided to come up with a single window clearance facility to accord speedy approval of construction projects.

 

“We believe in providing world class products at an affordable cost. Another strategy that we follow is to have a series of choices based on the need and applications through a very strong R&D and Innovative and affordable Solutions. Ours is a Win-Win strategy followed in terms of commercial which is achieved by designing and manufacturing customized solution for required application.” E. Madhavan, MD, JM Frictech India

 

 

 

 

“We foresee the road construction segment booming due to the impetus provided in the budgetary allocations for roads & infrastructure projects. The road construction push includes the Bharatmala Pariyojana with a Rs 5.35 trillion investment to construct 34,800km of roads. In addition, `1.57 trillion will be spent on the construction of 48,877km of roads by the state-run National Highway [Authority of India (NHAI) and the ministry of road transport and highways. ” Rajesh Kaul, Product Line Head – Medium & Heavy Commercial Vehicle Business Unit, Tata Motors

 

 

 

Excavators

 

Of the total value of India’s construction equipment market, analysts have forecast the excavator segment at $16 billion to $21 billion industry by 2020. Major Consultant Technavio's analysts have forecasted the excavator market in India to grow at a CAGR of 7.86 per cent over the period 2014-2019. With the new push from infra EPC projects, mining, and real estate, the demand for excavators across types and capacities is projected to have robust growth next five years.  Especially in the case of mining, the government’s focus on doubling metals and minerals’ production bodes well for India’s excavator market. The mining sector is currently making a big push towards mechanisation which in turn will churn up robust demand for mining excavators with higher capacities. Within the overall excavator market, Off Highway Research says, crawler segment is largest by value and second largest after backhoes in terms of units sold.

 

India has most global excavator majors, including Volvo CE, LeeBoy, Kobelco, JCB, Caterpillar, Komatsu, San, Hyundai,  Liebherr, LiuGong, Sany, Doosan Infracore, etc. Indian players include Tata-Hitachi, BEML, and Harsha Engineering offers Terra, India’s first micro excavator. Most of these OEMs are exporting from India.

 

 

 

Loaders

 

There has been an increasing demand for Loaders in the Indian off highway market. They account for more than 65 per cent of heavy earth moving equipment segment (followed by excavators) and 40 per cent of total demand of construction equipment in India. Again most global players have a major presence in this segment in India, and many of them are using India as a global manufacturing base for their global markets. In fact JCB, which sells maximum number of BHLs across the world, have the world’s biggest BHL factory at Ballabgarh in India, which supplies its global market. Other global players include Case Construction, Liebherr, Volvo CE, LeeBoy, Caterpillar, ACE, Escorts, Terex Equipment, etc. Most types and capacities of loaders are available in the Indian market, but the BHL will continue to dominate this category of off highway vehicles.

 

According to a report by Autobei titled Indian commercial vehicle industry trend & outlook 2018, The Indian Commercial Vehicle has registered a growth rate of twenty percentages in the domestic sales segment. The Indian Commercial Vehicle Industry has shown a de-growth of 10 percent in export for the year 2018 compared to the previous year 2017. The current market size of the Indian CV is approximately 8.7 lakhs units for the year 2018 included MAN, DICV, and Scania. The Industry has anticipated a double-digit growth for the year 2019 for SCV and HCV segments.

 

 

 

Tippers

 

This segment of off highway equipment is very robust in India. Demand will be driven majorly by segments ranging from infra to mining to urban infra transport. Most global majors are present in India and they are making gradual inroads eating into market share of a duopoly that long dominated India’s trucking industry. Demand is robust across all capacities, and flexible across the price spectrum. In fact an early indicator of this was the 40 per cent rise in tipper demand during April-August 2016, when overall medium and heavy truck segment reported a decline of five per cent in the same period, according to the Society of Indian Automobile Manufacturers (SIAM).  Tipper OEMs later confirmed that the orders were not part of the replacement cycle but fresh demand from various sectors. That trend has amplified now as the traditional demand drivers witness increased activity in the mining and EPC infra sectors.  According to Consultancy Race Innovations, the market remains largely duopolistic with Tata Motors and Ashok Leyland holding a combined market share of about 77 per cent. It also underlines a significant shift towards higher GVW (gross vehicle weight) vehicles, higher horsepower, and increased safety features.

 

 

 

Demand Dynamics

 

Other segments in off highway include mobile cranes, skid steer loaders, etc. But their market volumes and values are still small. Most off highway vehicles are either tracked or wheeled for free movement with heavy loads in rough terrain.  All high end models will have smart technology like GPS and terrain mapping radar for automatic movement. The major focus of Indian customers is now shifting from initial cost to Total Cost of Ownership (TCO), and the overall market for off highway equipment has turned competitive with products across the price spectrum. With global majors playing in the market the overall population of OEMs is substantial, making market more competitive. India is now a Buyers’ Market, where Aftermarket Services and the TCO are differentiating the market leaders.  The robust Indian market is forecast to go from strength to strength. Equipment sales grew a remarkable 40 per cent last year thanks to increased investment and a pick-up in project implementation in the country’s infrastructure market. This is expected to drive consistent and steady growth in Indian construction equipment sales for the next five years, and as the industry matures India could emerge as a significant regional manufacturing hub.

 

 

 

Performance Matrix

 

According to leading research firm ICRA, Mining & Construction Equipment (MCE) demand is intrinsically linked to capacity creation and energy consumption in the economy. Sectors essential for MCE demand, namely machinery and equipment (IIP expansion of 14.8 per cent), basic metals (4.8 per cent), coke and refined petroleum products (6.2 per cent) performed well. Besides the governmental spend on infrastructure, revival of the private sector capital investment would also be critical for a stronger recovery. Following three consecutive years of decline, the Indian MCE industry posted a 4-5 per cent growth in demand during CY2015. The growth momentum will pick-up in CY 2018, and the industry is slated to post ~20-22 per cent growth. Demand for mining equipment is expected to have a continued growth in CY2018, following mop-up of existing equipment capacity.

 

 

 

Going Forward

 

The future of Off-Highway equipment is bright as a result of the massive potential that exists in the country. The volumes of works depend on the government's effectiveness in facilitating project execution and addressing the key impediments highlighted above. Experts report that the construction equipment is forecast to grow by around eight per cent in 2014 and witness a higher 10-14% expansion during 2015-2018. The demand is expected to grow to 60,655 units in 2014, and reach 96,730 units by 2018.The demand for less frequently purchased equipment such as articulated dump trucks, crawler loaders and wheeled excavators will be driven by specific orders and no future pattern can be predicted for them with any degree of certainty at this point in time.

 

 

FAST FACTS

 

  • According to the Mid-Year Review from Off-Highway Research’s Indian Service,
  •  
  • sales of earthmoving, road building and materials handling equipment, along with
  •  
  • portable compressors, should reach 90,115 units this year.
  •  
  • For every 0.5 percent increase in mechanization, the CE demand would rise by $30-35 billion.
  •  
  • As per a report by IBEF , the infrastructure sector has become the biggest focus
  •  
  • area of the Government of India. Under Union Budget 2018-19, US$ 92.22 billion was allocated to the sector.
  •  
  • Recently ROI is also changed of Premium Truck and Bus product and fleet owner expected to reduce ROI cycle at least by one year.
  •  
  • Experts report that the construction equipment is forecast to grow by around eight per cent in 2014 and witness a higher 10-14% expansion during 2015-2018.

 




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