Spurred by CIL's sourcing plans, Tata Hitachi mulls import substitution

This year, Tata Hitachi is expected to import 10 pieces of 87-tonne earthmoving machine

Sensing a huge opportunity after Coal India disclosed plans to procure mining equipment worth Rs 120 billion over the next two years, excavator major Tata Hitachi is mulling at producing the 87-tonne mining excavator in India itself rather than relying on imports to better its sales.

Currently, this company – where Hitachi Construction Machinery has a 60 per cent stake and the rest 40 per cent is held by Tata Motors – produces excavators in the 47, 65 and 120 tonnes category respectively.

“If you look at our Indian portfolio, there is a vacuum in terms of products in the 65 to 120-tonne category and we were filling this vacuum via imports. Now, we are conducting a feasibility study to decide if we can produce the 87-tonne machinery from India itself," Sandeep Singh, Managing Director at Tata Hitachi, the market leader in excavators, said.

This year, the company is expected to import 10 pieces of this 87-tonne earthmoving machine.

Although, the mining segment comprises only 11 per cent of this company’s annual revenue, projected to touch Rs 45 billion in this fiscal year, Singh is bullish on this sector as procurement from mining companies is picking up. The mining equipment market, pegged at Rs 80 billion, is growing at a rate of 10 per cent with procurement from Coal India alone comprising 50 per cent of the market. Excavators and loaders – the categories where Tata Hitachi is present in – account for 13 per cent of the total mining equipment market.

Asked if Coal India’s plans to spend huge money on equipment procurement in the coming days has been a factor making Tata Hitachi consider domestic production of the 87-tonne excavator, Singh said, “Yes, Coal India has stated they will be spending huge amount of money in procurement of equipment. Also, this type of excavator will find good use in roadworks and irrigation segments.”

The road and irrigation segment accounts for the rest 90 per cent of the company’s turnover.

Once the company decides to indigenise the 87-tonne excavator, it will be produced from its plant in Kharagpur in West Bengal. This plant has the capacity to produce 3,500 pieces of equipment each year and is currently running at a 70 per cent capacity utilisation. Around 500-600 pieces of machinery produced from this plant is also exported to the neighbouring countries as well.

Besides, Tata Hitachi is also coming up with a re-manufacturing facility at the Kharagpur plant. 

Singh said that margins are extremely low in fresh sales of mining and construction equipment and thus the company, like any other mining equipment producer, has to rely on after-sales service and maintenance to drive its margins.

Refurbished equipment, which will also be rolled out from the Kharagpur plant will be cheaper by 30-40 per cent than its new counterparts.

After its decision to shut the Jamshedpur unit which was on lease, Tata Hitachi will be investing Rs 1.5-2 billion in the next two years. Singh said the closure of Jamshedpur plant will not have any impact on the company and the employees in this plant will be absorbed by Tata Motors.

In July this year, as part of its mechanisation drive to drastically scale up production, Coal India disclosed its plans to procure light-heavy earth-moving equipment.