Economy

All wrong things are happening simultaneously to construction equipment industry: VG Sakthikumar

G Balachandar Chennai | Updated on December 02, 2019 Published on December 02, 2019

A file photo of VG Sakthikumar, MD, SCHWING Stetter (India)   -  Bijoy Ghosh

After recording strong double-digit growth in 2018, the construction equipment industry was hoping to repeat the story in 2019. But then it started facing a bumpy road from April onwards with multiple reasons one after another pulling down demand with all sub-segments reporting decline in volumes. However, the industry believes it is a short-term blip and is hopeful of resuming growth soon.

Managing Director of SCHWING Stetter (India) and a Member of Governing Council of Indian Construction Equipment Manufacturers’ Association (ICEMA), VG Sakthikumar, spoke to BusinessLine about the slowdown, growth prospects and the industry’s upcoming flagship event EXCON 2019. Edited excerpts:

How have been the last two quarters for the construction equipment industry?

Definitely, there has been a slowdown in the past two quarters and it was not like last year level. Within our industry, there are different segments and the slowdown impact has also been different. There are actually 5 distinct segments – earthmoving, road building, concreting, material handling and material processing. The biggest impact is on the road building product segment.

The primary reasons for slowdown are lack of financing availability and issues in land acquisitions – this is from the project side where the contractors are suffering. Though the government has made a lot of efforts to improve liquidity and reduced interest rates, the lending scenario still needs to improve.

Earlier, people used to get 90 per cent of the loan amount, now it has come down to 80 per cent. So, one needs to shell out a higher initial sum from their pocket to buy equipment, and it has become difficult with delayed payments. So, I would say, there is a situation where all (kinds of) wrong things are happening simultaneously. With the auto slowdown, some type of truck chassis are not available where our equipment can be mounted on it and used for projects.

The earthmoving equipment category has more application areas unlike road building equipment. But, it is suffering too. In a nutshell, none of the five segments will be able to achieve the sales of calendar year 2018 when the industry as a whole registered volumes of about one lakh plus units. For 2019, there may be a double-digit decline and volumes would fall to 70,000 plus units.

When do you expect to see an improvement?

Actually, we felt we bottomed out in August as we thought activities will revive after monsoon around Pooja time. But due to the slowdown in the previous four-five months, new purchases fell due to sluggish infrastructure activity. A lot of machines hired and rented out were sent back to companies. New purchases are unlikely to happen till the activity picks up.

Also, political developments in states like Andhra Pradesh and Karnataka added to the problems. While change of government in Karnataka slowed down the activities with no decisions coming, cancellation of projects by the new AP government hit the segment hard. Hundreds and thousands of machines engaged in activities in Andhra Pradesh were leaving the site due to cancellation of projects. A lot of requirements are getting finalised by the rental companies. But they seek unreasonable terms and ask the manufacturers to share the risks in the event of payment defaults. Everybody linked to this chain is affected.

What can the government do to help revive demand?

Actually, this slowdown is not an India phenomenon. The global market is also facing a lot of challenges. In markets such as Indonesia, the government announced interest subvention schemes and new projects to boost sentiments, but things have not improved as we discussed some orders there. In several markets, it’s a “wait-and-watch” situation. Compared to those markets, the situation in India is definitely better. In October and November, the government released funds.

The current crisis can be (tackled effectively) by pumping money into the system and expediting the infrastructure projects. Also, sentiments have to change, instead of getting stuck in a negative mindset. All stakeholders need to believe that future growth is bright in India. Nobody has any doubt over India’s long-term growth story because the gap is so much for us to fill.

What is the agenda for EXCON 2019?

One of the major concerns for our industry is to bring more automation in order to improve the scale of projects and productivity. Here automation means better connectivity and management systems and not just putting something in the place of humans. So, automation in our industry is aimed at improving machine- and project-productivity, because ours is one of the lowest digitalised among the industry segments.

The theme for EXCON 2019 is ‘Smart i-tech - Next Gen India@75’. As India is the only country globally to offer hope for future growth, EXCON 2019 will see participation of players from across the globe. We are expecting 1,200 companies, including 350 plus global firms to exhibit their products and services. Space has also been increased to three lakh sq mtrs of exhibition area and we are expecting 70,000 people to visit the event.

Published on December 02, 2019
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