Tata-Hitachi. Tata-Hitachi expects higher growth as govt spends more on infra

With the Government fast-tracking growth in infrastructure, Tata-Hitachi Construction Machinery expects to grow 15 per cent annually for the next three years. 

“Achieving this kind of growth will be very good for us. We expect some tapering of input cost, which will again be a positive for the industry itself,” the company’s managing director, Sandeep Singh, told BusinessLine. 

The construction equipment machinery sector’s confidence stems from the Government’s decision to increase road construction to around 25,000 km in two years and build around 22 green express highways. The production in the mining sector last fiscal was around 665 tonnes, which the Government plans to increase to 1,000 tonnes in the next two years. The Government has also decided to monetise road and Railway assets, Singh pointed out. He said the main demand drivers for the industry are roads, irrigation, mining and the Railways. 

Singh said the construction equipment industry was earlier selling about 96,000 units with revenue of around $7 billion, and it would regain that level in a couple of years. According to a Boston Consulting Group report, India will be the second-largest producer of construction equipment by 2030, with revenues growing to $25 billion and sales touching 3 lakh units, leading to generation of 30 lakh new jobs.

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Rising input cost

He, however, added that the industry is constrained by rising input costs, which have pushed up the project cost. The increase in fuel and steel prices, and the rising inflation are added pressures. The input cost has gone up by 45 per cent, but the industry has not been able to pass it on to the customer. The overall industry declined by 8 per cent last fiscal, especially in the wheeled equipment segment, Singh said. 

He said prices of wheeled equipment increased by 25 per cent with the introduction of BS-IV. “The material cost impact is 12-15 per cent and the price increase on the machine is 7-8 per cent. We were able to pass on only 2 per cent to customers last year. It hit our margins quite badly,” he said. 

Government projects

He said the Government is committed to increasing investment in the infrastructure sector with the Prime Minister’s Office and the respective chief ministers monitoring the progress of projects closely. For example, ₹60,000 crore has been allocated for the Jal-Jivan project to provide safe and adequate drinking water to every home by 2024. There are also plans to construct four major and several smaller airports across the country, which will again drive demand for construction equipment. 

As far as road construction is concerned, the target last fiscal was 12,000 km, but it fell short by 2,000 km, which worked out to 29 km per day. Union Minister for Road Transport and Highways Nitin Gadkari has set a target of 50 km per day; Singh says even 35 km per day will be enough to lift the construction equipment industry. 

Chinese competition

Singh said Tata-Hitachi, which mainly manufactures excavators, produces 2-120 tonne excavators at its plants in Dharwad and Kharagpur, employing around 4,000 people. They are currently running at 65 per cent capacity. “Being one of the leading construction equipment companies in India, we are able to sustain our business but our margins are under stress because of higher input cost,” he said. The entry of Chinese manufacturers selling below cost has also hit the domestic industry, he said. 

The Tata-Hitachi product line-up includes excavators, wheel loaders and backhoe loaders sold under the brand Shinrai. The company recently unveiled a five-tonne wheel loader and a mini excavator at Excon, the international construction equipment and construction technology trade fair, which is currently on in Bengaluru.

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