Construction equipment makers on guard amid uncertainties before 2019 polls

The pace of road construction is expected to pick up now that the monsoon has come to an end, says Vipin Sondhi, managing director and chief executive officer at JCB India

The domestic construction equipment industry, which saw a volume growth of about forty per cent in the first eight months of the 2018 calendar year, is now vigilant. Public spending on infrastructure has been driving demand since 2016 but it may slow down in the run-up to the general polls. A reduction in fuel excise duty is estimated to trim government’s revenue by Rs 105 billion in the second half of financial year 2019 and may impact spending.

“We are going into an election year. We need to watch for the larger macroeconomic factors, including public spending and sustenance of spending, liquidity for funding infrastructure projects and funds available to NBFCs,” said Vipin Sondhi, managing director and chief executive officer at JCB India, the biggest player in the domestic construction equipment industry.

He said new uncertainties have come up. Besides the pace of public spending the other thing to watch out is the interest rate. “There will be a chain of events. But if public spending continues till it can, i.e. before elections start, the industry’s growth momentum can continue till first half of 2019. After that we will have to wait for a direction from the next government and economic situation,” added Sondhi.

The construction equipment industry sold record 61,246 units in domestic market in 2017 calendar year, growing seventeen per cent year on year. In the first eight months of the current year, the growth has been about forty-four per cent to 53,000 units. 2018 is certain to be a record year for the industry which has other players like Tata Hitachi Construction Equipment, Escorts and L&T.  

Roads and highways along with irrigation are the biggest driver and about three-fourth of the orders are estimated to come from these two segments. The pace of national highway construction has picked up in the recent years: the average daily construction was seventeen kilometres in FY16, it went up to twenty-three kilometres in FY17 and increased further to twenty-seven kilometres in FY18. The union road ministry government has set an ambitious target to construct forty-five kilometres of national highways every day in the current financial year.  

Sondhi said the other segments that drive demand for construction equipment vehicles- railways, urban rejuvenation and real estate- have not yet started contributing significantly. “If at least three of the five infra sector fires at any point you know the growth is sustainable,” said Sondhi. For JCB, the British construction equipment major, India is the single largest market.

He said the government has managed to put together a sustainable business model. Vehicles are also being used in a big way in desilting of village ponds by Telangana, Andhra Pradesh and Maharashtra to improve water storage. The pace of road construction is expected to pick up now that the monsoon has come to an end. “The October-March period is the peak time for construction and this is also the peak sales period for the industry,” said Sondhi.