The infrastructure sector, being a key propellant of India’s growth, remains a top priority on the Government’s agenda for economic development. After a sluggish few years, the sector is set for a strong turnaround. This, thanks to the Government’s dedicated efforts towards infrastructure development. The immediate focus areas include smart cities, transport infrastructure across different modes, bridges, renewable energy and affordable housing. The most noteworthy development with regard to these segments is that affordable housing and logistics have been assigned infrastructure status. This is a sign of the Government’s recognition of the criticality of these segments, and will lead to better investments and steady growth in these segments.
It is estimated that the infrastructure needs of the country warrant an investment of around $1.5 trillion over a period of 10 years. The scale and magnitude of projects in India might be perceived as a challenge. However, the net gains from being able to provide better services and more effectively cater to the demand of this growing demographic make these investments worthwhile.
This growth in infrastructure development, alongside industrial growth, will also drive the growth of mining. Couple this with the attractive FDI norms for infrastructure development and mining, and there is little surprise in the continual inflow of investment from all quarters, including developed economies and importantly, the private sector.
The pace of growth of the infrastructure segment in India over the past two years has been promising with several projects underway and many in the pipeline.
Key industry participants envision a potential for growth of upto 25% for construction equipment alone. While this is great news for the Indian economy, this, along with the Central Government reducing the GST on construction equipment from 28% to 18%, will be the key propellants for the short and medium-term growth of the construction equipment and commercial vehicle segments in India.
One school of thought opines that the current growth scenario is more fragile for pure play construction equipment manufacturers than for commercial vehicle manufacturers. There is a partial truth to this, more so for commercial vehicle manufacturers other than the likes of Volvo, thanks to their strong product portfolios in the medium and light duty commercial vehicle segments. For the others, however, their revenues from sales and service are contingent primarily on strong and sustained investments in the infrastructure, mining and real estate sectors. Simply put, it is high time for construction equipment and commercial vehicle manufacturers to step on the gas and take a stab at this opportunity.
Smart Technology
Themed ‘Smart Technology: Fuelling the Next Generation Infra’, Excon 2017, the largest exhibition in South Asia, was not only a showcase of the latest offerings from various manufacturers, but also a display of the positive sentiments that the construction equipment and commercial vehicle segments are riding on. The grand stalls of all the global leaders in the business with deliveries of machinery to new owners almost every 30 minutes had one underlying message shine through at Excon 2017: the potential of the Indian market is up for grabs and everyone is going after a fair slice of the pie. Indian brands are competing on the same stage as global brands, and customers perceive this as the quality of Indian products being on par with that of global manufacturers.
iCEMA (Indian Construction Equipment Manufacturers’ Association) is continually working alongside the Government, and using events such as Excon 2017 to encourage the procurement of new machinery that is made in India rather than imported alternates. Furthermore, customers appear to have traded their skepticism about investing in premium products for a more positive and visionary mindset, aimed at reaping the benefits and utility of high technology products.
The Right Equipment
Manufacturers therefore are more engaged with their existing and potential customers, the objective being to understand their expectations, their challenges and demonstrating the benefits of their latest products. While these efforts are not necessarily aimed at comprehensive research and development for the Indian market, they are geared to ensure better tailored products for operations in Indian conditions. Consequently, manufacturers have evolved from addressing customer concerns and needs in silos to today offering customers comprehensive solutions that address the overall cost of ownership vehicle availability, productivity, reliability, service and spares.
Contractors therefore are lining up to make investments in equipment, but are being cautious given that equipment alone accounts for 30-40% of a total project’s cost. While all the parameters mentioned above are important, the choice of equipment and productivity becomes critical, especially in a high growth rate scenario. Equipment manufacturers are therefore investing time and resources in educating customers on the best suited equipment for their businesses, and also on technology aids such as telematics solutions that will help them extract the most from their equipment whilst ensuring timely maintenance and hence minimum downtime.
What next?
The competitive landscape for construction equipment and commercial vehicles, particularly in the heavy duty and mining segments, is getting crowded. Customers have multiple manufacturers that they can turn to, leaving manufacturers with nothing but an Overall Value Proposition to win and retain a customer. This entails not just the equipment and its performance credentials, but also, and just as importantly, the aftersales relationship and service proposition.
The Government and financing entities have a critical role to play in encouraging investments in new, domestically manufactured equipment rather than in used imported equipment. This will involve the roll-out of stringent regulations around the type of equipment being imported, its age and availability of substitutes in India, as also the availability of attractive financing.
In summary, the current market conditions are the kind that equipment manufacturers have not witnessed in a while, and all signs indicate that this is the beginning of a run that is expected to last for a few years.
By Collin Remegius Noronha, Senior Consultant – Automotive & Transportation (South Asia, Middle East and North Africa), Frost & Sullivan