Better Times Ahead: An overview of the earthmoving equipment industry

An overview of the earthmoving equipment industry

With the sluggish growth in sales witnessed during 2012-15, the construction equipment industry (including the earthmoving segment) has recently started showing signs of revival. According to Off-Highway Research, during the period 2010-14, the market size of India’s construction equipment industry increased at a compound annual growth rate (CAGR) of 20.72 per cent.

Based on this historical CAGR, it is estimated that in 2016, the market size of the construction equipment industry was about Rs 448 billion. As per estimates by leading construction equipment manufacturer JCB, in the first six months of 2016 there was a growth in sales of over 45 per cent over the corresponding period of 2015. While the recovery is yet to mirror levels witnessed prior to 2011, the market is likely to recover fully by March 2018. The sales growth estimated for the first half of 2016 also reflects a long-overdue pick-up in economic activity. (Equipment is not bought unless construction works are expected to begin soon.)

Progress in the sector is buoyed by innovative business strategies charted out by players looking to expand their market share, both in Indian and overseas markets. Global construction equipment providers/manufacturers are eyeing India as a manufacturing hub. At the same time, domestic players are ramping up their manufacturing capability, sales network and spare parts availability so as to diversify their geographical presence. Programmes such as Make in India are providing the much-needed government backing. To improve the consumer experience and acquire new clients, equipment manufacturers are evolving their sales models, by extending lucrative after-sales services. Innovations with regard to power efficient equipment are also being given priority, given the growing operational and environmental costs.

Significant progress is also being made with regard to technological advancement to reduce wear and tear, provide high performance levels and decrease equipment downtime. Equipment is also being increasingly

tailor-made to suit customer requirements. The industry is adopting new technologies in a bid to tap the potential gains. Internet of things, automation processes, data analytics, geospatial technologies and software for real-time tracking and monitoring are some of the emerging popular trends. This is a significant  departure from the period prior to 2010, when the industry was termed technology averse.

The equipment rental and leasing space is also evolving. According to industry estimates, the rental and leasing equipment market in India is pegged at $2 billion. Of the total construction equipment used annually, around 20 per cent is hired. Most of the transactions take place locally through brokers. However, the market structure is yet to evolve, as the unorganised segment caters to nearly 70 per cent of the rental and used equipment volumes. Online platforms such as Srei-backed iQuippo look promising. The platform is the country’s first online marketplace for leased and rented construction equipment. It allows construction equipment owners to list their assets/services, negotiate with buyers, finalise terms of the deal, generate digital contracts/invoices and receive real-time payments. The platform will offer total solutions for all types of construction and mining equipment and will also provide value-added services such as asset certification, valuation, parking, maintenance, logistics, spare parts and manpower.

Going forward, as per the estimated CAGR (2015-20) for key construction equipment types, the projected sales in 2022 are likely to reach over 98,000 units (based on the growth projected by Off-Highway Research). Among equipment types, crawler excavators, mini excavators and rough terrain lift trucks are expected to register a CAGR of over 10 per cent. Other industry estimates peg the sales figure at about 131,000 units by 2022.

With respect to demand, there exists an opportunity worth about Rs 3 trillion based on the construction potential in projects in the pipeline across key infrastructure sectors. A subtantial part of this is expected to come from the road, power and tunnel segments. In addition, mega programmes such as Make in India and Skill India, as well as the policy push given by the recently introduced National Capital Goods Policy, 2016 are expected to give an impetus to the implementation of plans of equipment manufacturers and providers.