On a Growth Trajectory

Overview and outlook of the construction equipment market

The Indian construction equipment market was sized at about Rs 448 billion in 2016 in terms of revenue from equipment sales. The industry saw production and sales of about 59,582 units and 62,065 units, respectively, during the year. This was dominated by earthmoving equipment such as bulldozers, skid steer loaders, trenchers, motor graders, etc., which constituted about 60 per cent of the total market share. The remaining market share was distributed between construction/road equipment, material handling equipment and construction vehicles. The construction equipment market sees participation from both

public sector players such as BEML Limited and private sector players such as L&T Construction Equipment, Caterpillar and JCB India Limited. Most of the foreign private players have entered the Indian market through the joint venture (JV) route. However, many of them such as JCB, have now set up their own manufacturing and marketing facilities in the country.

The construction equipment rental and leasing market is currently valued at about $2 billion and roughly 20 per cent of the total construction equipment in the country is available for hiring annually. Equipment rental and leasing is primarily undertaken through brokers and the unorganised segment currently caters to nearly 70 per cent of the rental and used equipment market.

Evolution of the construction equipment industry

The Indian construction equipment industry was historically dependent on imports as India lacked domestic manufacturing capability prior to the 1960s. However, this changed with the incorporation of Bharat Earthmovers Limited (now BEML Limited) as a Government of India entity in May 1964. BEML started manufacturing dumpers, scrapers, dozers, etc., for the domestic defence sector from 1965. This was followed by the entry of the private sector which saw the participation of companies such as Telco Construction Equipment Company which was set up as a division of Tata Motors in 1961, Hindustan Motors Limited’s earthmoving equipment division was set up in 1971, and the joint venture of JCB and the Escorts Group in 1979, for manufacturing heavy construction equipment in India.

With the opening up of the economy after 2000, the Indian construction industry saw the entry of several foreign players such as Case Construction Equipment, Caterpillar, Hitachi, Ingersoll-Rand, John Deere, etc., through the JV route. At present, the material handling equipment industry is delicensed and foreign direct investment (FDI) of up to 100 per cent under the automatic route is allowed. The government also allows technology collaboration among players.

Rental and leasing is an upcoming segment and there has been an increase in demand for rented equipment in the past four-five years. The market has seen the entry of major players such as Srei Infrastructure Finance Limited. The company has set up an online platform – iQuippo – for leasing construction equipment. The platform 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. With an expected improvement in the business scenario, the demand for equipment rental and leasing is likely to increase.

Categories of construction equipment

There are four broad categories of construction equipment in the country:

  • Earthmoving equipment which comprises excavators, backhoe loaders, bulldozers, skid steer loaders, trenchers, motor graders, motor scrappers, crawler loaders, wheeled loading shovels, etc.
  • Construction/Road equipment comprising tunnelling machines, compactors, road rollers, stone crushers, hot mix plants, slurry seal machines, heavy duty pumps, spraying and plastering machines, pavers, concrete mixers, batching plants, etc.
  • Material handling equipment consisting of four categories, namely, storage and handling equipment, engineered systems, industrial trucks, and bulk material handling equipment (these include equipment such as cranes, conveyors, forklifts, and hoists).
  • Construction vehicles comprising dumpers, tankers, tippers and trailers.

Earthmoving equipment has the largest share, at about 60 per cent of the total construction equipment market.

Major players

The Indian construction equipment market has both public and private sector players. Based on sourcing options, the market can be classified into equipment manufacturing and the equipment rental and leasing segment.

Equipment manufacturing: Construction equipment manufacturing sees participation from both the public and private sector. The major public sector player is BEML Limited, a Miniratna (Category 1) company. Key private sector players are Caterpillar, JCB India Limited, Komatsu, L&T Construction Equipment, Hyundai Construction Equipment India, Sandvik Asia Private Limited, etc. The table lists major construction equipment providers in the country and the products they offer.

Equipment rental and leasing: About 20 per cent of the total equipment in the country is available for hiring annually. This is done with the intent of reducing upfront costs and increasing efficiency. The major rental companies are Gmmco Limited, Gemini Equipment and Rentals Private Limited, Quippo Construction Equipment Limited, Sanghvi Movers Limited and Tractors India Private Limited.

Outlook

The construction equipment market saw a revival in 2016, after a flat growth in sales during 2014 and 2015. Construction equipment sales saw a low of 47,889 units in 2014. However, this declining trend reversed and the market grew by 2 per cent to 48,883 units in 2015. The growth trend is expected to have further continued and equipment sales are estimated to have increased by 27 per cent to 62,065 units in 2016. The market has also been affected by demonetisation and the introduction of the goods and services tax (GST). Demonetisation hit the industry for a brief period in December 2016. Subsequently, sales were significantly affected in April-May 2017, due to confusion about the court order on the ban of BS-III automobiles. The implementation of the GST from July 1, 2017 affected the construction industry as 80 per cent of the construction equipment machinery was put in the 28 per cent tax slab while the remaining was taxed at 18 per cent. This increased the cost of construction equipment and led to a decline in sales. In November 2017, GST was reduced to 18 per cent for 85 per cent of the products and 28 per cent for the remaining 15 per cent. In addition, cheap equipment imports from China have also affected the demand for domestically manufactured equipment.

However, the long-term outlook for the construction equipment market seems bullish. This is due to significant investments that have been announced in the infrastructure sector under the Bharatmala and Sagarmala programmes, the government’s intent of removing implementation bottlenecks for infrastructure projects and the demand for technologically superior equipment from the coal sector to meet Coal India Limited’s 1 billion tonne production target. This is expected to create significant demand for construction equipment. According to Off-Highway Research, the sale of construction equipment is expected to increase to 79,645 units in 2020 from 48,883 units in 2015, a compound annual growth rate (CAGR) of 10.26 per cent. Based on similar CAGR projections, the demand for construction equipment is expected to reach over 98,000 units by 2022.

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