The infrastructure sector in India is slowly coming out of the grips of the pandemic-induced slowdown that had adversely impacted the earthmoving equipment market last year. Industry experts explore the current market scenario and what future holds for the market. 

The Indian infrastructure is estimated to grow at a CAGR of approximately 7 percent during the next five years. As per the market reports, the National Infrastructure Pipeline (NIP) scheme entered its second year in FY21 and about 42 percent of the NIP projects are under implementation. Another 19 percent is under development stage, while 31 percent is still in the conceptual stage. Earthmoving equipment being the largest used construction equipment will have a major role in the future infrastructure development in the country.

Market bouncing back 

The spread of Covid-19 pandemic last year has indeed impacted the earthmoving equipment and the overall construction equipment market in the country. After the easing of lockdown regulations and the slowing down of pandemic has shown signs of recovery in the market. In fact, the slowdown in the market started before the Covid hitting the country last year. 

Rahul Shorey, National Head – Construction, Tata Hitachi points out, “It is important to set the context first, before looking at the current situation. The earthmoving equipment industry was down by 13 percent even before Covid-19 hit us. The financial crisis in the aftermath of the IL&FS default had already impacted our industry, especially because of our heavy dependence on NBFC funding.”

Sandeep Mathur, Brand Leader- India & SAARC, CASE Construction Equipment explains how the Covid impacted the market and how it is coming out of the slowdown, “The pandemic and the consequent lockdown had affected businesses across sectors leaving them with multiple challenges and roadblocks to deal with. However, the various initiatives proposed by the Government of India as well as steps taken by organisations internally have led to an upward shift and the consequent growth in the industry.”

According to Rahul, due to a low base of Q1 of the previous FY, earthmoving equipment sales this year grew by over 75 percent in Q1 FY21-22 as compared to last year. 

Jaikumar D Kamath, Head – Road Machinery Business, Larsen & Toubro Ltd is of the view that during the second lockdown, people were prepared in a much better way. “Currently, though the overall market size is still a shade below what it used to be before the Covid outbreak, the outlook is very positive because of all the infrastructure spend which the government is announcing and which is actually happening. It’s going to happen only through the use of more construction equipment,” he adds.

From the mining perspective, the demand for higher capacity earthmoving equipment has seen significant growth this year. As Pawan Kumar, Chief General Manager (Marketing), BEML Ltd highlights, “All the bigger public sector mining companies continued to place orders for larger capacity equipment in large numbers and their demand is refreshed in record time which was not happening earlier. This boom is expected to continue up to 2030 which will give the much-needed boost to the earthmoving and mining equipment.” 

Coal India plans to achieve 1 billion tonnes of coal production by year 2023-24. To reduce the imports of coal and to increase the production, government started auction of coal blocks in large numbers. There are plans to increase steel production capacity in India to 300 MT by 2030-31 as per National Steel Policy, 2017. All these are expected to boost coal and iron ore mining in India in the coming years and bigger capacity earthmoving equipment will be part of this output growth.

What customers look for

Earthmoving machines are an important equipment in any construction activity. Consumers look for multiple factors before purchasing an equipment. According to Sandeep, the most important ones that are considered before a purchase are performance, efficiency, size, project requirements, total cost of ownership, warranty, maintenance, after sale service etc. 

Other than these, the functionality and area of use are also important factors. “Consumers want machines that can be used in various activities such as moving large amounts of earth, digging, grading soil, landscaping, removing dirt and rocks, demolition work and more,” Sandeep adds.

As a major customer of earthmoving equipment and other construction equipment, Pravin Kumar Thakur, Vice President – Plant & Equipment, GR Infraprojects Ltd, says, “Our equipment bank is very big when compared to our project size and turnover size. So, we normally use our own equipment but, to meet the peak requirements when demand is very high, we depend on rental also. As a normal practice, use of our own equipment is up to 80 percent and the remaining 20 percent is of rentals.” 

According to him, in special cases like quality is on top priority and there is a need for speciality equipment, then it is good to go for buying own equipment depending on the project demand requirements. For general equipment, it is advisable to depend on rental resources. 

Rentals to gain momentum 

Construction equipment rental market in India is still in its nascent stage from an organized market perspective. Currently the CE rental market is largely unorganized. However, recently there is a change visible with a few players are getting evolved and setting up larger fleet of multiple equipment types and adopting innovative technologies. According to SP Rajan, Head – Plant & Machinery, L&T Construction, “Rented equipment market now is localised, but days are not far for players from the neighbouring countries and other overseas companies to come and play a big role here because they are turning corporates.” 

The rental market is a mix of big and small players. According to Rajan, in days to come, the small players may slowly vanish because many companies have come up with age bar-related issues and then even the clients are insisting on particular age for the equipment. So, only the new and equipment with particular age will exist in the market. “Rental is here to stay and larger organisations may utilise it in a very big way,” adds Rajan.

Considering the current challenging market conditions, many customers are unable to invest on new equipment so that they go for rental option to fulfill the demand requirements. As Sandeep observes, “With prolonged impact of pandemic, securing finance is becoming a challenge so there could be a possible surge in the rental market. Consequently, Indian construction equipment rental market is anticipated to register a CAGR of about 5.1 percent during 2020- 25.” 

Technology to lead growth 

According to Sandeep, with increased focus towards newer technologies, digitisation is currently the biggest trend in the construction equipment industry. Companies are working towards leveraging digital technologies such as IoT, big data, automation, AI etc. and integrating the same in the upcoming machines. 

Rahul says, “The technology trends are moving towards minimising input as well as operational costs and increasing efficiencies. In terms of reducing input costs, migration towards more efficient emission norms is already taking place. We have remained at the forefront of this migration and launched our CEVIV compliant backhoe loader Shinrai PRIME and wheel loader TL340H PRIME.”

Challenges 

In spite of the current tough situation resulted after the impact of Covid, the earthmoving equipment market is surging ahead with growing activities in infrastructure development and mining. There are some challenges of course that pause as a hurdle for the industry in its journey of growth in the coming years. 

Rahul highlights, “The steep rise in commodity prices, especially steel, have put enormous pressure on the manufacturers, who have been forced to pass on some of the cost increase to customers, which has led to increasing cost in the entire construction value chain. This has brought pressure on margins for OEMs and threatened to hinder investments in the future. Further with the increased cost, customers may defer procurement, further putting pressure on revenues of manufacturers.”

Jaikumar is also concerned when he says, “This is something which has hurt all the manufacturers equally. Steel is used by everybody and fuel surcharge hurts the common man as well as all the manufacturers. So, the challenge is to try and pass on as much of this cost increase as possible to the actual end-user.” 

Another challenge is the adoption of technologies at higher cost in the prevailing practices in project contracting. Rajan says, “As we follow the L1 method in project contracts this has created large impediments when it comes to the introduction of latest technologies.” 

Future promising 

In spite of the challenges in the market, the broader future looks positive with a lot of new opportunities opening up in infrastructure construction. Sandeep says, “Excavators account for a bulk of revenue in the CE segment and its demand is expected to grow with a CAGR of 16 percent during 2021-23 and reach 28,000 units, as per Off-Highway Research report. For backhoe loaders as well, the market demand is back on track and the sale has also increased compared to last year.” 

Rahul is of the view, “The NIP talks of about `112 lakh crore of investment in Infrastructure with roads and highways, urban development & housing, irrigation, rural infrastructure, and water & sanitation account to >50 percent of the entire plan. These investments are expected to peak in 2022-23 and then moderate as we head towards elections in 2024. Therefore, this should support robust growth of earthmoving equipment in 2022-23 and lower growth in 2023-24 before we head to elections.” 

“With the government’s focus on infrastructure development, sale, as well as demand of these equipment, is expected to rise further in the coming times,” Sandeep concludes on a positive note.