After almost three years of sluggish growth (2011-14), the construction equipment market witnessed a surge in the past 18-20 months led by eased foreign direct investment (FDI) norms for the construction sector, revival of economic activity, and the government’s thrust on infrastructure development. These have improved the business sentiment for the equipment market.
Market structure
The equipment industry in India is highly fragmented. It comprises the organised segment (large private firms that cater to small-, medium- and large-scale projects) and a host of private contractors in the unorganised segment, which operate on a small scale.
There are also several joint ventures wherein domestic players have partnered with global majors, in a bid to obtain access to advanced technology and gain experience in project management. With regard to the type of ownership, most of the companies are private and BEML Limited is the only public sector company in the equipment industry. It is also the largest manufacturer of earthmoving equipment.
Size and growth
During the period 2010-14, the market size of the construction equipment industry increased at a compound annual growth rate (CAGR) of 20.72 per cent (Off-Highway Research). Based on this CAGR, it is estimated that in 2016, the market size of the construction equipment industry was about Rs 448 billion. According to industry reports, the sector witnessed a revival in 2016, after flat sales growth in the preceding two-three years. However, the recovery is yet to mirror the levels witnessed prior to 2011. With respect to FDI, the earthmoving machinery segment witnessed inflows to the tune of $364.11 million (Rs 19.79 billion) during April 2000-September 2016.
Sales and production
The period 2012-15 has been marked by a declining trend in construction equipment sales. According to Off-Highway Research, the market declined by 8 per cent in 2012, 16 per cent in 2013, and 14 per cent in 2014, to a low of 47,889 units. However, the declining trend reversed in 2015 and the market grew by 2 per cent to 48,883 units. The estimated sales of construction equipment increased by 37 per cent to 32,350 units in the first half of 2016.
The recovery in 2016 is likely to have been driven by the road sector, and translated into higher sales of equipment such as backhoe loaders, crawler excavators, motor graders and mobile compressors. Earthmoving equipment accounts for the largest revenue share in the construction equipment market, followed by concrete equipment and material handling.
With regard to production, based on the past average share of domestic production in total sales (96 per cent during 2008-12), it is estimated that the production in 2015 and 2016 was 46,928 units and 59,582 units respectively.
Conclusion
A significant budgetary allocation to infrastructure, healthy project pipeline and large-scale programmes such as Make in India, Housing for All, etc., are expected to generate sizeable demand for construction equipment. Policy support in the form of the National Capital Goods Policy, 2016 will provide an impetus to the sector and will be instrumental in attracting investment. Also, equipment providers are exploring opportunities in the rental and leasing business, and are laying strong emphasis on exports and after-sales services.
