The Rise of India’s Construction Equipment Industry

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The Rise of India’s Construction Equipment Industry

The Rise of India’s Construction Equipment Industry

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Oct 28,24

Driven by increased government spending, rapid urbanization, technological advancements, and the 'Make in India' initiative, the RAHSTA (road) ahead for the construction equipment (CE) industry is bright with full of possibilities and opportunities

The Rise of India’s Construction Equipment Industry

Over the past decade, India's road network has expanded by 59 per cent, making it the world’s second largest. National highway construction in India grew at a compound annual growth rate (CAGR) of 9.3 per cent between FY16 and FY24. As India’s economic momentum accelerates, this expansion is fueling growth across various core and allied sectors. Among the key beneficiaries is the construction equipment (CE) industry, which saw remarkable growth in FY24 with a 26 per cent increase.

Ranjan Sharma, Senior Director – Large Corporate Ratings, CareEdge Ratings, states, “There has been a significant focus of the Union government on infrastructure development in the country, as a result almost all segments like roads, ports, bridges, etc are doing well. If one looks at performance of the top 18-20 listed EPC companies, their order books have been consistently growing Y-o-Y basis. Road construction pace in India in FY24 was one of the highest (i.e. 34 km per day compared to 28 km per day in the previous year), as large number of projects were awarded in the preceding two years. In FY24, the construction equipment industry, which plays pivotal in infrastructure development, grew by 25 per cent (in terms of unit sold) led by earthmoving, material handling, as well as road construction equipment.”

But, in the current fiscal year (in the first 5 months), there has been some slowdown in project awards. As a result, experts expect the road construction pace to moderate in FY25 to about 31 km per day from 34 km per day. Even this speed is one of world’s fastest in the road construction segment.

Growth multiplier

Explaining the driving force behind construction equipment industry, Sandeep Singh, Managing Director, Tata Hitachi Construction Machinery Company Pvt Ltd, says, “Road construction, mining, housing, and the Har Ghar Jal Yojana are the main growth drivers. However, this year, heavy rains and elections led to stagnation in growth. Mining is growing as it has been privatised. Overall, we are looking at an average growth rate of 10-15 per cent over the next five years."

Today, everybody across the world is eagerly watching India’s unfolding growth story. Driven by solid automotive sales, Indian auto component industry is eyeing to grow from the current $ 20 billion to $ 100 billion in the next 6 years. Similarly, Indian Construction Equipment Manufacturers' Association (ICEMA) has set an ambitious target of $ 25 billion by 2030 (from the current $ 9.5 billion) for the Indian construction equipment industry.

According to Vipin Sondhi, Chairman, RAHSTA Expo Committee, CE manufacturers in India should work on seven-point agenda for building a strong industry. “The industry should raise the ambition bar higher (think global and build big brands), be obsessed with total quality, build scale, focus on R&D and innovations, strengthen the domestic supply chain, adopt Industry 4.0 and digitalisation, and invest in people to propel the industry’s growth forward,” he says.

India spends 0.5 per cent of GDP on R&D, while developed countries on an average spend 2.5 per cent of the GDP. Hence, to maintain market dominance and strengthen exports, CE makers will have to focus on innovation. Attracting young talent will also be crucial for CE manufacturing to propel growth. “If younger generation understands that technology is the driving force in manufacturing, and then they will be attracted to the sector,” says Sondhi, who is also the former MD & CEO of Ashok Leyland.

Global CE makers are using domestic arm to not just serve India but also the global market. ICEMA has set the target of $ 3 billion CE exports by 2030, which can be easily achieved considering the fact that India exported CE worth $ 0.5 billion in FY24. Dimitrov Krishnan, MD, Volvo CE India Pvt Ltd, adds, “Exports have doubled in the last two years. This growth is happening both in construction equipment as well as components market, particularly in the fabrication industry. I think it's only positive. The fact that we are the third-largest market in the world, and poised to become the second-largest, will definitely attract the scale required for construction equipment. Globally, the construction equipment market is about 1.2 million machines across all product types, so the export opportunity is high. Every brand is looking forward to investing in India, and more than 30 countries are receiving machines from India today."

Aiding sustainability

With environmental concerns growing, construction equipment are also gearing up to help construction companies (or project developers) minimise their carbon footprint. Sustainability will get further push with the implementation of stage 5 emission standards for construction equipment vehicles (CEVs) in India, which will take effect on January 1, 2025. Shalabh Chaturvedi, MD for India & SAARC region, CASE Construction Equipment (a wholly owned subsidiary of CNH Industrial N.V), says, “The Indian construction equipment industry is moving towards the one of the most stringent emission norms (Stage 5) in the world. To enable adherence to upcoming emission standards, supply chain also needs to be geared up. Many CE OEMs are extending sustainability targets to their suppliers as well.”

As emission standards become stringent, the construction equipment would require high quality components to fulfil the requirements of this emission norm. “If you want to manufacture CE that will lead to savings and sustainability, then component players have to play a major role,” opines Sanjay Koul, President - India and SE Asia and MD - India, The Timken Company.

Talking about the trends, Koul says, "The shift from conventional (fossil) to alternate fuels is bound to happen requiring changes in CE design, components and their materials. For example, the bearing industry is already working on alternate materials to meeting the emerging needs of CE makers. Smart batteries, smart hydraulic systems—all this will come. We need to keep an eye on developed countries to track technological shifts and catch up later."

Rising income levels is propelling the need for better infrastructure, which is expected to keep up the pace of demand for construction equipment. As the CE makers increase their manufacturing foot print in India, they are also aiming to increase sourcing of components and machinery (required for CE production) from domestic producers. Expressing optimism for the construction equipment manufacturing industry, Sitaram Ganeshan, President, Wipro Hydraulics, states, "We can become the second-largest construction equipment manufacturer in the world. We are also excelling in the components manufacturing industry, with 60 per cent of our business coming from outside India."

The emphasis on higher quality standards is leading to greater mechanisation, especially in larger projects; thus, aiding the industry's growth. Giving the user industry’s perspective on the construction equipment, S P Rajan, VP and Head Plant & Machinery, L&T Construction, says, “Construction equipment manufacturers should be fully geared up to fulfil the future requirements. I would like to see more use of biofuels in the near future. When it comes to electric equipment, we should develop systems that don't require charging at all. Companies should create self-charging technologies, like solar batteries, where heat is converted into energy. We should also focus on improving the ease of operation for operators."

The demand for construction equipment is anticipated to witness substantial growth in the coming years, driven by increased government spending, rapid urbanisation, technological advancements, and the 'Make in India' initiative. As a result, the industry players are reportedly gearing up to invest about $4.5 billion over the next 5-7 years to fulfil the rising demand. Thus, RAHSTA (road) ahead for the construction equipment industry is full of bright prospect laying a foundation for a strong, better India.

(This article is based on the construction equipment industry Panel Discussion that took place during RAHSTA Expo 2024 on Oct 10, 2024 at Jio World Convention Center, Mumbai)

Sandeep Singh, MD, TATA Hitachi

Road construction, mining, housing, and the Har Ghar Jal Yojana are the main growth drivers. Mining is growing as it has been privatised. Overall, we are looking at an average growth rate of 10-15% over the next five years.

Vipin Sondhi, Chairman, RAHSTA Expo Committee

The industry should raise the ambition bar higher, be obsessed with total quality, build scale, focus on R&D, strengthen the domestic supply chain, adopt Industry 4.0, and invest in people to propel the industry’s growth forward.

Ranjan Sharma, Senior Director – Large Corporate Ratings, CareEdge Ratings

In FY24, the construction equipment industry, which plays pivotal in infrastructure development, grew by 25% (in terms of unit sold) led by earthmoving, material handling, as well as road construction equipment.

Dimitrov Krishnan, MD, Volvo CE India Pvt Ltd

Exports have doubled in the last two years. This growth is happening both in construction equipment as well as components market. The global CE market is about 1.2 million machines across all product types, so the export opportunity is high.

Shalabh Chaturvedi, MD for India & SAARC region, CASE Construction Equipment

The Indian construction equipment industry is moving towards the one of the most stringent emission norms (Stage 5) in the world. To enable adherence to upcoming emission standards, supply chain also needs to be geared up.

S P Rajan, VP and Head Plant & Machinery, L&T Construction

Construction equipment manufacturers should be fully geared up to fulfil the future requirements. They should focus on improving the ease of operation for operators. I would like to see more use of biofuels in the near future.

Sanjay Koul, President - India and SE Asia, The Timken Company

The shift from fossil to alternate fuels is bound to happen requiring changes in CE design, components and their materials. For example, the bearing industry is already working on alternate materials to meeting the emerging needs of CE makers.

Sitaram Ganeshan, President, Wipro Hydraulics

We can become the second-largest construction equipment manufacturer in the world. We are also excelling in the components manufacturing industry, with 60% of our business coming from outside India.