Poised for Growth: Outlook and opportunities in the earthmoving equipment segment

Outlook and opportunities in the earthmoving equipment segment

The market for equipment moves in tandem with growth in the manufacturing sector. With the aim of increasing the share of manufacturing in the economy’s GDP, the government is taking steps to give an impetus to the equipment segment. While the continued thrust on infrastructure development is expected to support demand for construction equipment, especially for the earthmoving sub-segment, programmes such as Make in India and the increasing competition among equipment manufacturers and providers are likely to lend maturity to the market. Original equipment manufacturers (OEMs) are devising new business strategies to expand their market share while equipment providers (those who lease equipment) are following their lead. Product innovation too is taking place as a precursor to the higher growth trajectory expected in the equipment market in times ahead.

Projected sales for key equipment

Based on the estimated compound annual growth rate (CAGR) for key construction equipment between 2015 and 2020, projected sales in 2022 are likely to reach over 98,000 units. The figure has been arrived at using growth projections by Off-Highway Research. Of the equipment categories, key earthmoving equipment such as crawler excavators, mini excavators and rough terrain lift trucks are expected to register a CAGR of over 10 per cent. Meanwhile, other industry estimates peg the sales figure much higher, at about 131,000 units by 2022 (6W Research estimates).

Expansion plans of key players

The expanding equipment market is also nudging a number of players to come up with new strategies to retain their clients and tap export opportunities. While some are resorting to offering elaborate after-sales service options, others are entering into contracts for providing services such as on-field training for equipment use. Progress is also being witnessed with regard to the availability of spare parts across the country, as having a pan-Indian presence is a growing trend among OEMs and equipment providers. Some of the key players in the construction equipment business have spelt out their plans for the near term (see Table 2) .

Demand from key sectors

The demand for construction equipment is expected to be about Rs 3 trillion in the coming years, based on the construction opportunity in the pipeline of projects across key infrastructure sectors. Significant opportunity is expected to come from the road, power and tunnel sectors. This has been calculated based on the expected construction equipment share in total project cost, as given by the Construction Industry Development Council (CIDC).

Key areas of opportunity

Equipment providers can expect significant opportunities in the coming years, supported by a large number of upcoming infrastructure projects. 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 the much-needed momentum to equipment providers. Online sales are also an emerging area for equipment companies. Such platforms, for example, Srei-backed iQuippo, can provide a ready marketplace to expand customer reach. The trend is expected to gain traction, and will thus offer lucrative options to reach out to potential consumers.

Overseas markets: With the recent focus on increasing exports of construction equipment, markets like Africa and Southeast Asia are promising for domestically manufactured equipment.

Rental and leasing: Customers find it economical to rent/hire the required machinery. Such rental contracts offer another area of growth for construction equipment providers. This space is expected to grow at 25-30 per cent in the next few years, as per industry estimates.

After-sales services: Business models are evolving beyond just providing construction equipment. Supply of spare parts, after-sales servicing and the initial training of users are other services that are emerging as necessary measures for customer retention.

Policy impetus

The government’s agenda of facilitating growth in the manufacturing sector bodes well for the equipment segment. The recently introduced Three Year Strategy paper by NITI Aayog reiterates this. The government has spelled out a clear roadmap for promoting manufacturing units, especially along coastal regions (a model akin to that followed in China), and this is expected to have synergies with programmes such as Make in India and Skill India. With this, it will also become easier for players foraying overseas, as a ready and an accessible platform for exporting the domestically produced equipment will be provided.

In sum

The outlook for equipment manufacturers and providers is fairly optimistic, on the back of a robust pipeline of infrastructure projects. The real estate sector, another key consumer of earthmoving equipment, is also picking up, with the growing housing needs in the country.

Policies have been put in place, and now efforts need to be made towards their execution. However, this will depend on the commensurate augmentation of the skilled labour force, the ultimate user of the equipment. Until this happens, there will be a significant mismatch between demand for equipment and its effective utilisation.