The Indian construction equipment industry is growing in leaps and bounds and is also witnessing its own share of challenges, especially with the hike in raw material prices.
Dimitrov Krishnan, MD, Construction Equipment India and President, Indian Construction Equipment Manufacturers Association (ICEMA), the apex body representing the construction equipment industry says, “Availability of material and the commodity price cycle went very-very high, particularly steel, which is a very big component in the construction equipment industry has definitely impacted the industry’s cost levels dramatically.”
“While there are challenges around semiconductors also, they are not as big a part of the product cost. Steel is a basic raw material for us, and the cost increases are very-very high, which obviously prices of construction equipment’s have gone up largely driven by cost increases,” he added.
The sales of construction equipment in the first quarter of FY2023 came at 23,037 units, a decline of 14 percent decline compared to 26,910 units sold in the previous quarter. Krishnan attributes the YoY decline on a higher base, given that sales generally pick up in the last quarter of a financial year, it was also a result of the slowdown witnessed in the highway construction activity from Q4 of FY22.
China, followed by USA are the top markets for Volvo Construction Equipment globally. India comes third at the moment.
Krishnan says that the gap between volumes in India and the top 2 markets is very large, “Until the domestic demand catches up, it will be difficult to be an alternative to China, it will take time. In our industry, we believe that by 2030 India could be the world’s second-largest market.”
He pointed out, “All the infrastructure policies, reforms that have been implemented last year once they get implemented in full steam. I think by 2030, we can see the volumes grow by 2.5 to 3 times of our current size in India and that would be a good time-frame.”
The Volvo India CE Chief believes consistent policy will play a big role towards attracting investments into the country, driving domestic demand.
“And I think while the policies are coming into place, we have to see implementation and the action. As the President of ICEMA, we are working very strongly with the government in all of these areas, whether it’s indigenisation, skilling, regulations that can actually take us closer to the global markets in terms of the product quality, as well as emission norms which are applicable. Once we can bridge the technology gap, we can even start exporting to mature markets from India.”
At present, Volvo Construction Equipment’s facility in Bangalore, India, has a capacity to produce around 3,500 units a year. The company typically produces around 2,000-2,500 units, thus having enough headroom for meeting increased demand in the market.
Krishnan says currently the company does not need to make major investments to increase production. But it is more about having the availability of raw material and working with suppliers to smoothen out the supply chain.
In India, the company manufactures road equipment such as compactors, road pavers, and excavators, which all put together is roughly close to 60 to 70% of its yearly sales. It also exports some of the products not just to the neighbouring countries like , Bhutan, Bangladesh, Sri Lanka, but also to Southeast Asian markets, Africa, Middle East, and also Latin America. Krishnan says around 15-20% of the Volvo CE’s production is exported from India.
Then there are the traded equipments or low-volume models, which the company imports from other markets such as Sweden, China, and Korea.
“We intend to increase the product range out of India in the coming years particularly and producing more of our SDLG branded wheel-loaders, which today we are importing from China. We intend to produce them in India, and that will be further enhance the localisation, which has been our main theme. That we will drive localisation of products, much more than we have been doing in the past, shares Krishnan.
One of the benefits for any company to have local supply chain is that it is able to reduce the turnaround time, cost, and also derisk itself from global supply chain disruptions. Volvo CE India at present has managed to attain an average of 60-65% of localisation on its product range. The idea is to continue to increase the content and the near future aim is to achieve 70% local content.
Krishnan says there are challenges like the lack of availability of certain components in the local market and shortage of suppliers for them. “We need to bring in manufacture more of the present low-volume products to make them high-volume products. We are trying to do that, and that’s the aim going forward. We also want to use India as in some way as an export location for countries around, and to be seen as an alternative manufacturing site compared to China. This has been in as any industry to have a China Plus One strategy that we can follow.”
India is fast accelerating and establishing itself as a centre of excellence and R&D hubs for global organisations for all industries alike.
For Volvo Group too, India is probably home to its largest R&D base outside Sweden. Even for the construction equipment segment, Volvo’s R&D team focusses on the products that is manufactured in India, especially the road equipment.
“We have an R&D team that works on complete product development from scratch. They start from a blank sheet of paper to a full machine development on a regular basis and that’s happening even for products that are exported from India,” shares Krishnan.
He further stated that additional work on the R&D front will happen on hydraulic excavators, which is a new focus area. “We will be doing development work in India, and that’s a big step forward for us to develop more and more products suitable for the Indian market. Then we also have teams, which do R&D work for the rest of the world, doing, for example, embedded software development, as well as embedded software testing and verification. The work is happening on some of the products which are not even sold in India, they are basically global products, and we serve the global other R&D teams through this team, so that’s what we are doing here now,” reveals Krishnan.
