The Indian construction equipment industry has started to recover, with increasing focus on infrastructure development. Construction equipment is classified into earthmoving, material handling, material processing, concrete and road construction. The construction scenario across sectors has improved in terms of better mechanisation and digitalisation of equipment. Tippers are now being geotagged, fuel consumption of equipment is being monitored and the overall productivity has improved. The use of advanced telematics has become increasingly important in the construction equipment segment to facilitate effective remote monitoring and control equipment fleet. Intelligent control systems are being increasingly installed in new construction equipment to optimise work and increase efficiency. Further, highway projects with superior technical and design specifications are expected to drive demand for modern construction equipment. Deeper embankments will require more earthwork and will increase demand for earthmoving equipment.
The industry witnessed a strong rebound in September 2022, with sales recording a 45 per cent growth over August 2022. The growth was mainly driven by the earthmoving equipment segment, which accounted for nearly three-fourths of the total sales, followed by concrete equipment witnessing a 62 per cent growth and material handling equipment accounting for 33 per cent. During 2021-22, the construction equipment market in India witnessed a decline of 8 per cent. The sales of construction equipment declined from 92,470 units in 2020-21 to 85,385 units in 2021-22. According to industry estimates, sales of construction equipment (domestic sales and exports) are expected to grow by 15-20 per cent in 2022-23.
Shift towards electric options
There has been a shift towards renewable energy sources in the past decade. These help mitigate climate change, build resilience to volatile prices, and reduce energy costs. As a result, electric mobility options are being increasingly adopted in the Indian construction equipment industry. Further, their demand for commercial use is expected to increase in the coming months. Other factors responsible for this shift include rising manufacturing costs due to the increase in fuel and raw material prices, and recycling.
JCB India introduced the industry’s first fully electric excavator, the JCB 19C-1E, at Excon, Bengaluru, in May 2022. JCB 19C-1E is a zero-emission machine and has four lithium-ion batteries that power the machine for a full day on a single charge. The company also launched a 22 tonne hydraulic excavator on the NXT platform, which is an open source application platform. Further, Escorts Construction Equipment launched NXT13DC compressed natural gas (CNG), India’s first hybrid pick-n-carry crane, with dual fuel (diesel and CNG) and RC2522, and country’s first mono chassis safe crane with a 25 tonne lift capacity, at the Excon exhibition. The NXT13DC CNG crane in the 13 tonne class has a 49.5 horsepower Bharat Stage III engine compatible with CNG and a robust straight axle back end.
One of the major barriers to the adoption of electrified equipment is the downtime from charging. Battery-swapping solutions and high-power charging (up to 1.5 MW, up from approximately 150 kW) solutions are being developed but they still lack wide-scale commercial availability. In addition to this, even if these technologies materialise and become widely available, there will still be several types of heavy machinery and equipment as well as applications for which adoption will be slow due to the remoteness of worksites and limited or unreliable access to electricity. With increasing utilisation of electric power, greater power density will be required. The current limitations in battery technologies mean sizeable battery packs will be needed to meet this demand. Their higher cost, onboard space requirements and long charging times may hinder speedier product development in larger machine size classes. Also, hydrogen fuel cell technology has emerged as a potential solution. While new technologies come with their own sets of challenges, they have the capability to deliver the power densities required for many heavy utilisation machine forms at the job site.
Construction equipment rental market
The equipment rental market in India is still at a nascent stage and is primarily in the hands of unorganised players. To add to this, Covid-induced slowdown in the construction sector has significantly impacted it. However, equipment rental companies are coming up with strategies to standardise and organise the sector. Contractors have started setting up their own equipment rental divisions of surplus equipment to use for their own projects as well as to rent out to other contractors. According to Off-Highway Research, the retail value of the Indian construction equipment industry was $4 billion in 2021. Purchases by rental companies accounted for $2.3 billion or 58 per cent. This is a lower proportion than rental’s share in unit terms (67 per cent) because of the high number of backhoe loaders, which are a relatively low-cost machine bought by rental companies. Overall, two-thirds of construction equipment sales in India are to rental companies.
There are two type of rental models – dry and wet. The wet rental model is currently prevalent in India. Under this model, the equipment is used by the lessee but the control lies with the rental company in terms of its maintenance. The other is the dry rental model which gives control of the equipment to the lessee. However, at times the equipment is not used or maintained properly, limiting its lifespan.
Going forward, construction equipment rental companies need to focus more on strategic collaborations and partnerships as well as mergers and acquisitions to increase rental penetration and market share. There is a need to devise new models of hiring which will be beneficial to both the hirers as well as other construction stakeholders. Further, there is a need to standardise equipment rental rates, operating procedures, work orders and payment recovery.
Equipment financing
Demand for construction equipment financing is linked to the performance and growth prospects of the construction industry; this is largely driven by investments in end-use sectors, such as mining, urban infrastructure, roads, ports, irrigation, power, real estate, steel, cement and automobiles. Going forward, customer demand for greater flexibility and convenience will increase the use of non-standard financing agreements. Thus, dealers and original equipment manufacturers (OEMs) should offer customers integrated choice, which includes equipment finance as well as life cycle financing of equipment. Further, companies need to move to the automation route, to fasten the entire process as well as survive in the technology-led market.
Issues and challenges
Standardisation of equipment prices becomes a challenge due to competitive market and buyers (especially government clients) opting for lower-priced equipment. It becomes a challenge for equipment manufacturers to price their products so as to maintain profit margins as well as remain cost competitive. Availability of new equipment is adversely affected due to non-availability of spare parts and subassemblies with OEMs in India. This, in turn, affects overall equipment utilisation levels.
Equipment procurement comprises a significant share of the investment outlay of a construction company. If cash flows are low and the overall growth in the sector is tepid, procurement of equipment is a challenge. Besides, as the equipment inventory increases, the costs of regular maintenance and working capital cycle go up.
Another issue is the lack of a skilled workforce, which not only impacts construction operations, but also brings down the utilisation levels of the equipment owned by a company. The paucity of skilled manpower also impacts the equipment procurement plans of companies.
The way ahead
The construction sector has made concerted efforts to automate its processes, resulting in higher demand for
construction equipment. The upgradation of equipment in keeping with new emission norms will open up more global markets, thus pushing equipment exports.
With the launch of National Infrastructure Pipeline and Gati Shakti, growth in the earthmoving, material handling and mining segments is expected. Furthermore, high growth projections for the construction industry will have a trickle-down effect on equipment financing and renting. Small construction companies and contractors from Tier 2 and Tier 3 cities are anticipated to drive leasing and renting demand in the coming years. The central government’s Vision 2030 plan is the right step towards creating a conducive policy environment. It has proposed an action plan with emphasis on quality along with cost competitiveness to help the country become a manufacturing and export hub for construction equipment.