BEATING UNCERTAINTIES

While the government’s policy initiatives have set the ball rolling for the revival of India’s infrastructure construction segment, the Indian construction equipment industry is bullish on a turnaround for the market in the coming years. However, the prevailing challenges coupled with the entry of Omicron can be cause of concern for the market in 2022.

The Indian construction equipment (CE) industry has evolved over the years to become a significant CE market globally. According to an IBEF report, India is expected to become the third-largest construction market by 2022. India will require investment worth Rs 50 trillion ($777.73 billion) across the infrastructure by 2022 for a sustainable development in the country. These are expected to drive the demand for construction equipment in the coming years.

A recent TechSci Research projections indicate that the India construction equipment market is projected to cross $ 4.7 billion by 2025, on account of anticipated growth in construction industry, increasing foreign investments, and rising number of smart city projects in the country. Earthmoving segment is expected to continue its dominance during the forecast period. However, the concrete mixing segment is anticipated to witness the fastest growth over the next five years. Based on specific product type segmentation, the market is dominated by backhoe loaders, followed by crawler excavators, forklifts, and pick &carry cranes. Demand for such products is expected to continue growing in the coming years owing to the factors such as increasing project sizes, shorter completion time, and demand for customized and multipurpose equipment by end-users.

Demand drivers

Government initiatives focused on infrastructure development are further boosting demand for construction equipment in India. Major government schemes including the Smart City Mission, AMRUT (Atal Mission for Rejuvenation of Urban Transformation), Metro Rail in urban areas, Bharatmala, and Sagarmala, among others and the recent Gati Shakti are driving the demand for construction equipment. In addition, government is also supporting the construction equipment market by liberalising taxation policies for construction industry such as GST and custom duty. According to IBEF, in 2018, the Government of India reduced the GST on construction equipment from 28% to 18%, which helped the CE manufacturers to reduce the overall cost of equipment and other operational losses. In spite of all these measures, the spread of COVID-19 pandemic (Omicron) poses a big challenge for India CE market.

Stakeholders’ views

At a time when the pandemic is again posing a threat to the industry’s growth prospects in its new avatar of Omicron, major industry people respond to us on the outlook of the Indian CE industry.

From the perspective of the Indian CE industry, Dimitrov Krishnan, President, ICEMA and Managing Director, Volvo CE India, says, As compared to a year-on-year degrowth witnessed in FY21, we have seen a 9 per cent growth during the period between April and November 2021 vis-à-vis the same period last year. Though FY2020-21 started with a sombre note, the overall equipment sales have shown consistent month-on-month growth since May this year till October. However, the scenario seems to be changing in recent months with sales of construction equipment having witnessed a decline in November over the sales recorded in October this year.” Looking at the future trend, he adds, “We are happy to see that the government introducing several new initiatives such as the Gati Shakti Mission and the launch of the National Bank for Financing Infrastructure and Development. These initiatives will help synergise infrastructure projects and increase the decision-making speed.”

Looking at the ongoing scenario in the Indian construction and infrastructure market, Samir Bansal, General Manager, Off-Highway Research, says, “Off-Highway Research forecasts that the market for construction equipment will follow an upward trend in the long term and predicts it to rise 11 per cent to 82,000 units in 2021. Assuming a third wave of the Covid-19 pandemic does not hit the country, sales should increase 15 per cent to 94,100 units in 2022 and a further 11 per cent to 104,650 units in 2023.” At the same time, he points towards the further strengthening of pandemic wave hitting the industry and economy as he adds, “Covid-19 is the biggest challenge for construction equipment growth and the fast-spreading Omicron variant may start the third wave.”

Considering the prevailing trends in the Indian construction, mining and infrastructure market, ICRA predicts growth in the coming year for the construction equipment segment. At the same time, the agency does not rule out a degrowth in case of a third wave of pandemic impact. “The second wave of Covid along with an increase in equipment prices (following changes in emission norms and steep rise in input costs) coupled with muted rentals and erratic monsoons slowed down the volume growth post Q1 CY2021 and thus, the volumes for H2 CY2021 are estimated to remain weaker than H2 CY2020. While this trend is expected to continue for Q1 CY2022, ICRA believes that with easing of supply side constrains and continued infrastructure push, domestic CE industry is expected to register 7-10% annual volume growth during CY2022 (CY2021 to witness 15-17% growth) and 10-12% in CY2023. Nevertheless, any slowdown in infrastructure activity, or any subsequent pandemic wave poses downside risks to our estimates,” says Mayank Agrawal, Sector Head and Assistant Vice President, Corporate Sector Ratings, ICRA.

Sandeep Mathur, Brand Leader, CASE New Holland Construction Equipment, a leading player in the Indian CE industry, sees immense growth potential for the industry in the coming years. “After the second wave of Covid-19, the economy is reviving and the construction equipment industry is expected to change a lot due to technological advancements. The difficult times and slow economy encouraged the industry players to innovate in order to come back and hence, there is immense potential for growth in the near future. Also, the industry has witnessed support from the government in terms of new infrastructure development announcements in India. As earthmoving equipment is necessarily required for big construction projects, we are manufacturing machines with features that provide greater safety and security.” Looking at the future, he is of the view, “With continuous developments and initiatives, the construction industry will become smart and vigilant to cope with the economic transitions. The Indian market is slowly coming back on its feet and the future looks bright for the development of the country as well as the CE Sector.”

From a mining and construction industry perspective, Sharad Thussu, Head – Mining & Construction Equipment Division, Voltas says, “Mining and Construction form the backbone of infrastructural and economic development in the country. While the industry witnessed unprecedented disruption due to the intermittent lockdowns, most construction sites have been safely operational for some time. The second wave of the pandemic caused delays in infrastructure projects and restricted working of mining sites, thus impacting the sales of crushing and screening equipment and machine parts. However, subsequent easing of lockdown and the Government’s push on infrastructure projects revived the demand for the same. The crushing and screening business has witnessed a spurt in equipment demand in 2021, as both Iron Ore and Road Infrastructure segments registered a growth. We received the largest single order from Rungta mines in Barbil, Odisha for supplying 55 units of Powerscreen made crushing and screening equipment, which has been a major success for us this year. Regulation and investment in Infrastructure by Government have been instrumental in creating demand for the construction equipment market. The Government’s push will continue to create a better business environment and push demand for the sector.”

Souma Ray, Director, Haulotte India, while speaking on the prevailing market trends and outlook, highlights some key measures that are needed in the challenging market conditions, “The onset of the pandemic in March 2020 brought the whole world practically to a halt. Businesses all across suffered a major setback with the lockdowns and restrictions that ensued. India in no way was different. Even after the gradual opening up from June 2020, everyone was skeptical and measured. It was only by the last quarter of 2020 that the business sentiments started improving. There was again a major dip during the severe second wave in April 2021, but thankfully there wasn’t a complete stoppage. Since then, the economy has been on a steady growth path which is an encouraging sign. Provided the future waves (including the new Omricon scare) don’t cause severe disruptions, the CE market shall continue in its revival path of growth. However, we must take note of the current supply chain crisis of components, semiconductors and hydraulics, etc. coupled to the erratic increase of shipping cost which has not only increased the manufacturing costs but has also extended the delivery lead times. These factors are affecting all equipment manufacturers worldwide. As per current indices this situation is likely to remain unstable till third quarter of 2022.”

“The outlook of India’s construction equipment sector is optimistic since the country’s needs for infrastructure will continue to grow massively even in the adverse situation of Omicron (Covid 19) and stiff government policies. A clear vision, purpose-driven governance and policies are required from the Government of India to build around growth in equipment manufacturing which may be more than double in the next five years if it is driven properly by keeping all the environmental and policy-related factors in near future,” says Safar Mohammad Khan, General Manager-HDD, Apollo Techno Industries.

Infrastructure and construction projects have picked up in 2021, though the second wave of the pandemic impacted the market for a while. Boman R. Irani, CMD, Rustomjee Group, speaking on the CE market trends, “India is expected to become the world’s third largest construction market by 2022 and this augurs really well for the construction equipment industry. Robust demand, attractive opportunities, policy support as well as attractive investments are some of the main factors that will play a key role in the continued growth of this sector. According to a report by ICRA, the industry is estimated to grow at 15-20% per annum. Initiatives like Housing for all, the Smart cities mission and the recent master plan for multi modal connectivity are all expected to give a boost to the already flourishing sector. While road construction activity remains to be the primary driver of the industry, the rising costs of raw materials especially steel as well as tighter financing norms by financial institutions are some of the challenges that the industry will continue to face.”

Looking ahead

The Covid pandemic that was new to the world in 2000 has now become a part of ourlives as we have to live with it. We have successfully overcome the Covid challenges in 2021 and it should be the same in 2022 also when Omicron is standing as a threat to the world economy. For India, we need to continue out efforts to effectively iron out the various challenges prevailing in the CE market which have been highlighted by the industry stakeholders here while fighting against the Covid of prime importance.

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