The construction equipment industry in India had its worst recessionary phase between 2011 and 2014. When growth returned in 2015, Tata Hitachi, a 60:40 joint venture between Hitachi and Tata Motors, decided to restructure its business to make the best of the good times.

Between 2015 and 2017, the company closed down two loss-making overseas subsidiaries: Lebrero SA and Serviplem SA of Spain. In India, the company is closing down its “high cost” Jamshedpur (Jharkhand) facility. Production is consolidated largely at Kharagpur (West Bengal) and Dharwad (Karnataka), both of which are now witnessing a ₹200-crore capacity expansion drive.

“We have already reduced production at Jamshedpur to a great extent and it will stop by the end of this fiscal,” Sandeep Singh Managing Director of Tata Hitachi told BusinessLine .

The plant, the first of its three facilities, which once produced the entire range of Tata-Hitachi products, is now only producing some light machine components. The rest have been moved to Kharagpur and Dharwad.

Of the 300 employees at facility, blue-collar staff have already been redeployed. Redeployment of workers will begin next month. The plant will officially wind up in March 2020. But Singh expects they can vacate the space by October 2019. The land will go back to Tata Motors, which had leased out the space to Telcon, the predecessor of Tata Hitachi.

Cost factor

Singh said cost of production at Jamshedpur was “very high” when compared to the other two facilities. “...managing three facilities and coordinating vendors when the total production is rising was proving costly,” he said.

According to him, the Kharagpur plant (apparently, the largest excavator production facility in Asia) was set up in 2010 at a cost of ₹550 crore with the understanding that Jamshedpur would gradually cease to operate. “That decision was taking time. We hastened it in last 3 years,” Singh said.

So how do the account books look now?

Singh claims that together with strong demand growth, the restructuring paid off. The company was back in the black in FY17 after five successive years of losses. The profits only widened in FY18.

The top-line is growing by 15-20 per cent, riding on strong demand from the railways road sector; the Centre’s Bharatmala and Sagarmala projects; the expansion of track-capacity by the railways; the growth in mining; and the State expenditure on irrigation and infrastructure push by urban local bodies.

“We expect to reach ₹4500-crore turnover by the end of this fiscal,” he said, adding that the project execution rate had improved under the current government and if the policies continue, demand would grow.

Import woes

However, there is a new concern, too. Material costs have gone up by nearly 10-15 per cent due to the combined effect of a weaker rupee(which is making imports costly), a spike in commodity prices, and a nearly 15 per cent hike in steel prices over the last eight months.

“Overall, on one side there is demand and on the other, there is pricing pressure. In a competitive market we cannot pass on this kind of (sharp) cost increase to customers. So there is pressure on our margins.”

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