The year 2021 gave numerous ups and downs for the construction equipment and equipment financing industries. When the year comes to an end, the sectors look forth towards infrastructure as the ‘Growth Puller’ for the period ahead
The construction equipment industry has been one amongst the strongest contributors in backing the country’s infrastructural developments. The ongoing pandemic of Covid-19 followed by the economic and market uncertainties hard hit the equipment market not just in India but globally. However, with the economic activities now gaining momentum and with the Government’s keen interest in pushing infrastructural activities the construction equipment industry looks forth to regain its galore. And with the equipment market expected to bounce back strongly, the financiers supporting the industry also aims to achieve and explore further into the construction equipment financing business.
The year 2021 when comes to an end, the construction equipment and financing industry had its fair share of ups and downs. The year saw announcement and expansions of numerous big ticket projects that could facelift India’s infra-outlook. With the evolving opportunities from the infrastructure sector, the equipment and equipment financing segments view infrastructure as the power booster for the sectors growth. As per the industry analysts and market studies being held during the year, infrastructure is set to emerge as the sole growth driver of change for the construction equipment and equipment financing sectors in India. Moreover, the scenario is also said to remain the same for global equipment and financing markets.
Roundup
The construction equipment industry witnessed a slew of opportunities and challenges during the year 2021. While the year started posing numerous growth hurdles, especially when the nation was hard hit with the second challenging wave of Covid-19, the latter part saw new opportunities emerging with the infra-push taking a center stage. As per industry analysis body ICRA, the construction equipment industry which was estimated to witness a 15-20 per cent growth in CY2021 is likely to continue its trajectory till CY2023. However, a slight moderation is predicted in CY2024. Within the infrastructure sector, road construction pulls in the mammoth share of investments and opportunities for the construction equipment industry. The industry is majorly run by the loaders and earthmoving equipment industry followed by the lifting and transportation machineries. Wherein, the backhoe loaders and excavators segment hold the major share.
The sector also witnessed increased adaption of digitalization and electrification of equipment during the year. The pandemic which pressed the need to adapt and embrace virtual platforms and real-time communications pushed and encouraged the equipment manufacturers to upgrade and evolve into a digitally equipped era. Most of the equipment manufacturers today offer digitally sound and highly tech-equipped machineries that bring in an ease in operations, better turnaround and reduced downtime. However, the analysts view that though the sector is evolving into a hi-tech wave, the end customer is yet to realize the value of investing in such hi-end machineries. On the demand side the realization of investing in such machineries is yet to pick up its pace and awaits its surge.
Another challenge or rather a scenario that pressed the need to adapt was the introduction of new emission norms in India (CEV-III to CEV-IV) which was introduced in the month of October. The market analysts predict the OEMs to go in for a price hike owing to the new norms pushing the equipment industry to further upgrade themselves to suit as per the emission standards. ICRA anticipates the demand for refurbished equipment to rise in such situations owing to the costlier higher complaint vehicles. Though the equipment manufacturers promise improved engine performance and cost efficiencies attached in the long run, the realization of investing in such machines is yet to be fully realized by the end customer market.
Operational adjustments are also to be fully realized as the machineries are now more electrified and digitally equipped as against the manual ones. To support this, many among the equipment manufacturers have stepped in to provide the necessary training required to strengthen the operator skill-set and thereby make the customer realize and reap in the benefits associated to the upgraded machineries.
The sector also saw industry majors pushing their competitive spirit and exploring the industry developments into new opportunities. One among the market leaders, JCB India showcased Pothole Repair Machine developed jointly with inputs from the Central Road Research Institute – providing a one-stop solution for roads and highway maintenance. Another major, Cummins India commenced production of its state-of-the-art 4.5 litre engine system for wheeled equipment. The CE vehicle equipped with BS-IV certified engines were approved by the International Centre for Automotive Technology (ICAT). CASE launched an advanced version of its eagle eye telematic solution developed in association with Bosch India. The new version provides live tracking for the operating machine and assists in Geofencing, by setting a predefined area on a map beyond which the machine will not work. Thereby helping to alert the user to any kind of theft or unauthorized usage of the machine along with device tempering alerts.
Growth Pullers
India is expected to become the third-largest construction market globally by 2022. India plans to spend US$ 1.4 trillion on infrastructure projects through the National Infrastructure Pipeline (NIP), from 2019 to 2023, to ensure sustainable development in the country. Through the NIP, the government invested US$ 1.4 trillion in infrastructure development as of July 2021. Moreover, the nation requires investment worth Rs.50 trillion in infrastructure sector alone by 2022 to have sustainable development in the country. This brings in a slew of opportunities to explore for the construction equipment and equipment financing industry.
Looking on to the market opportunities a recent study by IBEF points out – Prime Minister Narendra Modi announced a Rs. 100 lakh crore master plan for multi-modal connectivity in October 2021, with the goal of developing infrastructure to lower logistic costs and improve the economy.As a part of the Gati Shakti National Master Plan, the government is planning to launch geospatial digital platform to facilitate planning and monitoring of projects ranging from telecom networks, gas pipelines to road and railways. In the Union Budget 2021, the government allocated Rs. 60,241 crore for road works and Rs. 57,350 crore for the National Highways. The government plans to construct 8,500-kms road by March 2022. Moreover, an additional 11,000-kms of National Highway corridors will be completed by March 2022. The government announced an outlay of Rs. 118,101 crore for the Ministry of Road Transport and Highways. Also, the government, under the Bharatmala Pariyojana, was awarded a project worth Rs. 5.35 lakh crore including construction of >13,000 kms of roads worth Rs. 3.3 lakh crore.
In October 2021, the Dubai government and India, inked an agreement to develop infrastructure such as industrial parks, IT towers, multipurpose towers, logistics centres, a medical college and a specialised hospital in Jammu & Kashmir.For FY21, Indian Railways has the highest-ever planned capex of Rs. 215,058 crore. As per the Union Budget 2021, the Ministry of Railways has been allocated Rs. 110,055 crore. In FY21, the Indian Railways recorded the highest loading in freight transportation of 1,232.63 million tonnes.In the Union Budget 2021, Rs. 9,000 crore (US$ 1.24 billion) has been allocated to create and augment telecom infrastructure in the country. Also, the Budget 2021 allocated Rs. 42,824 crore (US$ 5.88 billion) for the energy sector. Through the budget, the government announced Rs. 305,984 crore (over five years) for a revamped, reforms-based and result-linked new power distribution sector scheme.The Mega Investment Textiles Parks (MITRA) scheme was launched to establish world-class infrastructure in the textile sector and establish seven textile parks over three years. The government announced Rs. 305,984 crore (US$ 42 billion) over the next five years for a revamped, reforms-based and result-linked new power distribution sector scheme.In September 2021, National Mineral Development Corporation Ltd. (NMDC) R&D Centre collaborated with CSIR-IMMT (Institute of Minerals and Materials Technology) to pursue combined research projects on iron ore mining technologies.
According to the Department for Promotion of Industry and Internal Trade (DPIIT), FDIs in the construction development sector (townships, housing, built up infrastructure and construction development projects) and construction (infrastructure) activities stood at US$ 26.14 billion and US$ 25.38 billion, respectively, between April 2000 and June 2021. In FY21, infrastructure activities accounted for 13% share of the total FDI inflows of US$ 81.72 billion. All these infra-pushes brings in a reason to cheer for the construction equipment manufacturers and thereby also broadens the opportunities for financiers to explore the sector.
Fund Flows
Acquiring an ease in fund flows has been an area of concern for the construction equipment demand markets. The evolving machineries and cost attached to the new-age and tech-upgraded machines often challenge the financing potential of the end customer. Thanks to the equipment financing and NBFCs today, the sector has by far been able to cope to a decent stature today.
An emerging trend being witnessed today is the increased collaborations between the original equipment manufacturers (OEMs) and major banks or NBFCs in India. Many among them have entered into exclusive contracts or tie-ups and offer attractive funding modes and required support to the end customers. Considering the prevalent economic uncertainties such associations are being proven beneficial for the demand market in achieving enhanced credit approval and other improved financial solutions. This also brought in a considerable boost in the demand for rental equipment and used-equipment buybacks as well as exchanges.
Automation has been another pushed forward by the financiers to scale up the demand opportunities. TATA Capital in one of their official blogs states, “A typical equipment finance process takes around 5-30 days before the construction equipment reaches the customer. To improve the overall process for CE finance, the sector has pushed for the automation of the finance process. Given the increase in technology-enabled operations across industries, the push comes as no surprise. Besides, the need for transparency in the CE finance process can drive the automation need furthermore. This includes transparency in the entire transaction process, from documentation to the monthly equated payments on the loan.”
Another such interesting facet being brought in by the financiers as pointed out in TATA Capital’s official handle is, “Across industries, customer demand for personalised, allied services has pushed the demand for enhanced flexibility in non-standard, customised loan agreements in the CE finance industry. To thrive in the CE industry, many lenders now provide allied services which include bundling equipment, supplies, software, and equipment.Especially now, as most CE buyers suffer from reduced cashflow, lenders can harness alternative CE finances, collaborate with OEMs on buyback schemes, create favourable rental options, and start pay-per-use leases to meet the market demand innovatively.”
As per the market analysts the construction equipment market is projected to reach USD 250.4 Billion by 2026 from USD 208.3 billion in 2021, at a CAGR of 3.8 per cent during the forecast period. The growth will be fuelled by increased infra-investments, expansion of urban infrastructure and such clusters, economic corridors etc. Such measures are anticipated to only bring in the much needed boost for the construction equipment industry. And with the construction equipment industry eying to cash in the new and evolving opportunities, a hassle-free flow of funds becomes a necessity. The period ahead, if progresses as is being anticipated, will ramp up the opportunities for the construction equipment and equipment financing sectors. The construction equipment and equipment financing industry thus eyes towards an interesting future to unfold in the period ahead and awaits the year 2022 to open with a slew of new opportunities and unexplored growth areas.
