Feeling the earth move.
An increase in road construction and irrigation activities led to a 49.41% growth in sales of earth-moving equipment between January and July, brightening prospects for the industry to post its best ever sales in a year.
The numbers also hint at a revival in both projects and investment (public, if not private).
Sales have also grown at the fastest pace in the last five years, which included three years of consecutive decline between 2012 and 2014.
Sales of construction equipment such as back-hoe loaders, used in all kinds of construction activities; excavators and compactors, used in road construction and irrigation projects; wheel-loaders, used primarily in mining activity for removal of overburden; and material handling equipment such as skid steers and telescopic handlers, rose to 26,106 units during the first seven months of the year from 17,472 units during the year-ago period, according to data provided by Indian Construction Equipment Manufacturers Association (ICEMA).
“It is good to have growth back,” said a relieved Vipin Sondhi, managing director of JCB India, which commissioned a third manufacturing facility in Jaipur last year. He added that current demand has helped his company utilize 80-85% of its manufacturing capacity at its other two facilities in Faridabad and Pune.
“But what needs to be seen is if this can be sustained. Sustainability needs long-term efforts. It is important other key infrastructure sector such as railways, urban development, and at some stage real estate, should come back to the growth path,” Sondhi added.
JCB is the largest manufacturer of earth-moving or construction equipment in the country, followed by Tata Hitachi Construction Machinery, Komatsu India Pvt. Ltd and Caterpillar India. The market, which peaked at about 52,838 units in 2011, hit a low of 35,900 units in 2014 and 36,798 in 2015.
One reason for the recovery is the government’s emphasis on roads. Two years ago at one stage, less than 4km/day was being built. That is now up to 12km/day and there is talk of raising it to over 20km/day, with the current year expected to close at 17km/day.
The government’s decision to move away from the so-called public private partnership (PPP) model to the engineering, procurement and construction (EPC) and hybrid annuity models, where risks are split between it and the developer, has also helped.
“EPC has been a big driver,” Sondhi of JCB said. “Growth is (also) coming from the public investments through budget. The finance minister created fiscal space to get the infrastructure sector moving.”
According to Govindarajan Chellappa, Piyush Nahar and Poornaa Venkatesan, analysts at Mumbai-based brokerage firm Jefferies India Pvt. Ltd, the feedback on irrigation is “pleasantly” surprising.
“This is primarily in the states of Maharashtra (which has made big investments in building aquifers in arid parts of the state), Madhya Pradesh and Andhra Pradesh (for river-linking projects) and Telangana,” they said in a 31 August report on the Indian construction industry.
Initial work has begun on dredging of major North Indian rivers to enable inland water transportation, they added.
Credit : MINT