India has announced significant investments for the development of its infrastructure sectors in the years to come. This includes ambitious programmes and projects such as Bharatmala (under which 35,000 km of roads are to be developed at a total cost of Rs 5.35 trillion), the Sagarmala programme (under which 415 projects are to be undertaken to develop ports at an estimated cost of Rs 8 trillion), opening up of the coal mining sector to commercial mining from 2018, housing development under the Pradhan Mantri Awas Yojana, and urban development programmes such as the Smart Cities Mission.
These large-scale infrastructure projects entail significant construction activities, thus providing a massive opportunity for construction equipment players. The sale of construction equipment is therefore expected to rise at a compound annual growth rate (CAGR) of 10.26 per cent from 48,883 units in 2015 to 79,645 units in 2020 as per Off-Highway Research estimates.
Segment-wise demand trends for construction equipment
The major demand for construction equipment is expected to come from four broad categories of infrastructure segments – transport infrastructure (roads, railways, aviation and ports); the mining sector; the housing and real estate market; and other infrastructure segments such as those under the Smart Cities Mission and other public works programmes.
As per revised estimates from NITI Aayog, the investment in infrastructure development during the 2012-17 five-year plan is expected to be Rs 38,228 billion. This is 1.6 times the investment of Rs 23,777 billion made during the previous five-year plan (2007-12) at current prices. For the next two financial years – 2018-19 and 2019-20 – NITI Aayog expects the total expenditure on infrastructure to be Rs 24,353 billion and Rs 27,936 billion respectively.
Demand from transport infrastructure: Roads, railways, aviation and ports
Transport infrastructure forms the backbone of the economy and the government has embarked on a journey to accelerate the development of the country’s transport infrastructure – roads, railways, airports and ports. As per government statistics, national highways constitute about 5 per cent of the total road network, but carry about 40 per cent of the total traffic transported on Indian roads. As per India Infrastructure Research, there are a total of 1,236 road projects under various stages of development. These comprise 798 announced projects, 356 under-construction projects, 33 projects which are at the bidding stage and 49 awarded projects. In all, these projects are expected to add a total of 106,567 km of roads at a total cost of Rs 12,953 billion.
The government has also announced significant investments for developing port infrastructure in the country. Under the Sagarmala programme, the government aims to develop and modernise the country’s ports at an estimated cost of Rs 8 trillion. As per India Infrastructure Research, there are 311 port projects under various stages of development. These comprise 127 announced projects, 98 under-construction projects, 54 projects which are at the bidding stage, 24 awarded projects and eight approved projects. These projects are expected to add a capacity of 953 million tonnes per annum at a total cost of Rs 2,524 billion.
Further, there are 95 airport projects under various stages of development. These comprise 63 announced projects, 24 under-construction projects, two projects which are at the bidding stage, five awarded projects and one project for which expression of interest has been received. These projects are expected to be completed at a total cost of Rs 1,367 billion.
Demand from the mining sector
India is the third largest producer of coal in the world and produced 554.1 million tonnes (mt) of coal in 2016-17. The government has now decided to allow commercial coal mining and has shortlisted 10 mines to be put up for bidding in the first round of commercial coal mining auctions. India is also the fourth largest producer of iron ore as per 2014-15 numbers. The country produced about 192 mt of iron ore in 2016-17, an increase of 23.8 per cent from 2015-16.
The government has now allowed 100 per cent foreign direct investment (FDI) in the mining sector and hopes to attract significant investments. Companies such as Vedanta and KIOCL Limited are already planning to invest $9 billion and Rs 1.5 billion, respectively, in the sector. As per India Infrastructure Research, there are about 173 key mining projects under various stages of development which are expected to add a total capacity of 928.41 mt at a total investment of at least Rs 1.22 trillion. This is expected to create significant demand for construction equipment from the mining sector.
Demand from the housing and real estate market
Under the Pradhan Mantri Awas Yojana – Housing for All, funds worth Rs 40 billion were provided in Union Budget 2015-16. Going forward, the housing and real estate market is poised for significant growth. As per India Infrastructure Research, there are over 365 upcoming private housing projects which are to be undertaken over the medium term. This is expected to attract an investment of Rs 2.5 trillion-Rs 3 trillion, of which about Rs 1.8 trillion is expected to come from the public sector and Rs 800 billion from the private sector.
Demand from other infrastructure sub-segments
India has announced significant projects for public works and local infrastructure development. This includes those under urban schemes such as the Atal Mission for Rejuvenation and Urban Transformation, the Smart Cities Mission and urban transport development. For the rural sector, the National Rural Drinking Water Programme and Swachh Bharat Mission (Gramin) have been announced.
As per India Infrastructure Research, there are about 270 water supply and sanitation projects under various stages of development. These are expected to add over 17,425 million litres per day water supply and sewerage treatment capacity, spanning a pipeline network of 8,804 km. This also includes solid waste management projects with a waste handling capacity of 19,174.75 tonnes per day. These public works programmes are likely to create a substantial demand for construction equipment.
Equipment-wise projected sales of construction equipment
The size of the Indian construction equipment market was estimated to be Rs 448 billion in 2016. Broadly, the equipment market consists of five categories – earthmoving equipment (comprising 56 per cent of the market on a revenue basis in 2014), concrete equipment (19 per cent), material handling equipment (13 per cent), road construction equipment (9 per cent), and material processing equipment (3 per cent).
The period 2012-14 was marked by a declining trend in the sale of construction equipment in the country. 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 reaching a low of 47,889 units. However, the declining trend reversed and the market grew by 2 per cent to 48,883 units in 2015. The sale of construction equipment was estimated to have increased by 27 per cent to 62,065 units in 2016. This recovery is expected to have been driven by increased demand from the road sector, which created higher sales for equipment such as backhoe loaders, crawler excavators, motor graders and mobile compressors. As per the estimated CAGR (between 2015 and 2020) for key construction equipment types, the projected sale in 2022 is expected to reach over 98,000 units.
With a plethora of investments announced in the infrastructure sector, the demand for construction equipment seems poised for growth and the outlook for equipment manufacturers and providers looks optimistic. Equipment manufacturers need to streamline their products, integrate new technologies in their offerings, and upskill their after-sales service and maintenance teams. They can also leverage in-house knowledge sharing and hands-on training of their high-end equipment so as to bring in higher levels of productivity and efficiency in their services.