Construction equipment manufacturers are trying to keep up pace with the changing technology, new industry standards, cost optimization and customers’ ever-changing needs.They are therefore focusing on the market needs and implementing technological modifications that cater to the general demands. Construction equipment manufacturers are seeing business coming back to normalcy backed by announcements such as the Gati Shakti, National Infrastructure Pipeline institutionalising of NABFID etc. The construction equipment market is also hopeful to get back on track based on recent developments of reduced commodity prices. The government is taking continuous initiatives to hasten the pace of project execution such as policy, procedural, administrative and legal reforms.
The sharp increase in budget on capital expenditure for FY23 by more than 35%, from INR 5.54 lakh crore to INR 7.50 lakh is a positive sign. The industry expects a significant increase in award of contracts for highway construction, new railway lines, water management, development of ports, etc.
Construction Equipment sales grew 8% YoY in Q2 FY 2022-23
As per ICEMA, the construction equipment industry witnessed a strong rebound in September 2022, with sales recording 45% growth over August 2022.
All the sub-segments including Earthmoving, Material Handling, Material Processing and Concrete equipment contributed to the growth, except for the road construction equipment which witnessed a negative growth of 36% during this period.
On a quarter-on-quarter basis, the sales in the second quarter remained around the same level as of the first quarter. This is primarily because of the lower month-on-month sales growth recorded during July and August this year. The industry witnessed a strong rebound in September, with sales recording a 45% growth over August 2022.
The growth was mainly driven by the Earthmoving segment, accounting for nearly three-fourth of the total sales, which witnessed 46% jump in sales during September over August this year, followed by concrete equipment witnessing 62% growth and 33% in material handling equipment. The CE industry sold 4,036 units of Backhoe Loaders & 2632 units of Crawler Excavators in September 2022, an increase of 52% and 43% YoY respectively.
Market Drivers for Construction Equipment
- Rising urbanization in India has accelerated infrastructure investments and consequently the demand for mechanization in construction projects.
- Three segments namely material handling, material processing and concrete equipment registered positive growth during the year.
- Exports of construction equipment also increased significantly by 60 per cent in FY22 over FY21 as per ICEMA. Mining equipment too has been stable.
- The surge in railway infrastructure development projects across India such as Delhi-Mumbai Trade Corridor, Chennai Metro Rail ($14.9 billion) and Diamond Quadrilateral is seeing good demand.
- The government continues its thrust on infrastructure development through the announcement of mega plans including the National Infrastructure Pipeline, Gati Shakti Masterplan, National Monetisation Plan etc.
- Govt. plan to increase the award of contracts for highway construction, new railway lines, water management, development of ports
- National Bank for Financing Infrastructure and Development (NaBFID) which is expected to be operational by the first quarter of the current fiscal will support the development of long-term non-recourse infrastructure financing, including the development of the bonds and derivatives markets necessary for infrastructure financing, and to carry on the business of financing infrastructure.
- Prices of steels are moderating, the government has announced waiving of customs duty on the import of some raw materials, including coking coal and ferronickel, used by the steel industry. As of mid-June, prices are already at Rs 62,000-64,000 per tonne and can be expected to trend below Rs 60,000 per tonne by the end of the fiscal.
- The introduction of newer technologies in the industry such as the adoption of alternate fuels can help the industry attain sustainable growth in the future
- Top names in the business like JCB, Volvo CE and Schwing Stetter are either already working on electric versions of some of their big yellow machines or conducting feasibility studies for the launch of select global e-applications in India
Challenges in the Construction Equipment market
National highway construction in India also slowed down to 20.43 km a day during the first four months of the FY 2022-23 according to ICEMA official data owing to the second and third waves of COVID-19 pandemic, which adversely impacted the pace of construction activity in the country. It also impacted the supply chain constraining the industry’s ability to cater to the emerging demand. Natural calamities like cyclones and heavy rains had also affected construction activity, particularly in the Southern part of the country, further affecting the demand for construction equipment.
As per industry veterans, The biggest challenge comes in the form of the conversion of BS (III) to CEV Stage IV emission norms. The norms brought about changes in the pricing of construction equipment, incurring around a 30 percent increase in price. ICRA reported there has been a 10-20% increase in prices of construction equipment, mainly due to increasing input costs along with a change in emission norms. The new emission norms which already made 60 percent of the machines costlier by about 15-20 percent. Rse in commodity prices like cement, steel and bitumen is also a big challenge.
The way forward for Construction Equipment Market
Despite the challenges, there is bright light ahead of the road. There has been a steady increase in the sales numbers during the four quarters of the current fiscal. The sales volume has increased by 12% from the previous quarter. This has brought back much-needed growth momentum The ongoing push for infrastructure projects is also expected to continue to increase the demand for stable, safer, advanced tech equipment and more productive solutions in construction equipment.
The roads and Highways sector has been and continues to be one of the key drivers for growth for the infrastructure sector in India. India needs roads, both in rural and urban areas to progress. The government has shown significant focus on building a world-class road network. Thus, there is a substantial budget outlay in successive National Budgets towards this segment. Investments that have been earmarked for this sector present a great opportunity for the construction equipment market. The focus is on hree major things that include investing in R&D, Capacity Enhancement & Skill building.