每日吃瓜

The need for better infrastructure is pressing with India?s rapid urbanisation and burgeoning middle class. Some 590 million people will live in cities by 2030, and could account for 70 per cent of Indian GDP, according to a McKinsey report. In addition, the rapid growth of the Indian economy in past has placed increasing stress on physical infrastructure, ie, electricity, railways, roads, ports, irrigation, water supply and sanitation, all of which suffer from deficit in terms of capacities as well as efficiencies.

Thanks to the new government, which is expected to award 4,000 km of roads to be bid via public-private partnership (PPP) mode, the road sector is expected to be alive and kicking. Road equipment is one segment that can drive the equipment demand, and given the investments planned in road projects, the demand for road equipment is set to witness an upsurge. As put it by Amit Gossain, EVP-Marketing, Business Development and Corporate Affairs, JCB India, ?Due to the strong pipeline of road projects to be awarded by the National Highways Authority of India (NHAI) and state governments, the opportunities for the road equipment manufacturers are sizeable.?

?The market is projected to increase to 2,700 units in 2014, and grow thereafter at a CAGR of 13.62 per cent to a level of 4,500 units by 2018,? says Samir Bansal, General Manager-India, Off-Highway Research.

India has one of the largest road networks in the world, behind only the US and China. Roads account for 80 per cent of passenger traffic and 65 per cent of freight traffic in India. The annual growth of road network in India is projected at over 12 per cent for passenger traffic and over 15 per cent for cargo traffic. With automobiles and freight movement also growing at a rapid rate, the necessity for a road network good enough to carry the traffic is paramount. Understanding this need, the Government of India has set aside 20 per cent of the investment of $1 trillion reserved for infrastructure during the 2012-17 period to develop the country?s roads.

As per reports, the value of roads and bridges infrastructure in India is projected to grow at a compounded annual growth rate (CAGR) of 17.4 per cent over FY12-17. The country?s roads and bridges infrastructure, which was valued at $6.9 billion in 2009 is expected to touch $19.2 billion by 2017. The financial outlay for road transport and highways grew at a CAGR of 19.4 per cent in the period FY09-14. For FY14, India?s Planning Commission provided an outlay of $6.9 billion for the roads segment.

The market
The Indian road equipment market is worth Rs 800-1,000 crore per annum and is likely to grow at the rate of 10-15 per cent per year. The demand for road-building equipment looks promising. Last year, the road construction equipment market stood at an industry volume of 2,500 machines and it is expected to grow at the rate of 12-13 per cent in the coming years. While the industry waits for more investments to happen in national highways, there are a lot of state highway projects that are picking up in Uttar Pradesh, Rajasthan, Bihar, Karnataka, Tamil Nadu and the North-east.

Prantik Saha, Marketing Manager - Road Construction Equipment, Atlas Copco, says, ?In the next five years and beyond, we believe there will be a realisation of the huge untapped potential in all product segments of the road equipment sector in India. Compactors, pavers and tandem rollers, equipment such as planers, feeders, etc, will also get an opportunity to deliver higher quality roads in India. Recent surveys on road development in India indicate that in developing markets like ours, road infrastructure will be an extremely important component to support the growth opportunities.? Saha adds, ?The North-east in particular, has very few roads and very low connectivity. Looking at the current activities and projects, this region is a major focus area with plans in place by authorities and quick turnaround time for awarding projects. Today, demand for equipment is also increasing gradually from this part of India.?

Observes Ramesh Palagiri, Managing Director & CEO, Wirtgen India, ?Work on state highways for certain states like Madhya Pradesh, Uttar Pradesh, and Rajasthan, has seen a pick-up in activities and that?s the reason why the road equipment sector is able to sustain itself. However, the next one year will continue to be challenging for this sector as it takes time for the various steps taken by the government to translate into work on the ground. For the healthy growth of the sector, the requirement is to clear the bottlenecks in infrastructure sector and in particular, the road sector.?

Sanjay Wadnerkar, Vice President, LiuGong India, elaborates, ?I foresee a fair amount of bidding in the coming years. The bid pipeline is significant with projects worth several thousand crores of rupees, comprising approximately 10,000~12,000 km. These projects include both NHAI projects and state government projects. The turnaround is expected in BOT awarded projects operational in 2015-16. Though fund is challenge, ADB, Japan Bank and World Bank support can release the pressure in the system which can help OEM like us to sustain.?

Demand-supply
Highlighting the demand-supply scenario, Bansal had this to say. ?Demand for road equipment comprising asphalt finishers, compaction equipment and motor graders, is inevitably linked to the level of road building activity. Sales peaked in 2007 with the implementation of many rural road programmes but remained low thereafter, following a slowdown in the implementation of national highway projects.? He adds, ?Demand for motor graders depends on the execution of major road projects as their use is limited on the district and rural roads. Therefore, its market has witnessed a major decline from a peak of about 550 units in 2007-08 and has halved to about 275 units in 2013 due to the ongoing problems with execution of national highway projects.?

According to Bansal, the demand for compaction equipment has declined from a peak of over 3,200 units in 2007 to around 2,500 units in 2011 and has remained steady thereafter. Similarly, the market for asphalt finishers declined from a peak of 925 units in 2007 to around 700 units in 2011 and has subsequently remained at that level. This demand is sustained mainly by the ongoing road construction activity in the states. He comments, ?The asphalt finisher market is dominated by locally manufactured wheeled machines. Mechanical drive is popular in the smaller under-5.5 m finishers, mainly on account of price, while the larger machines invariably have a hydrostatic drive. The introduction of stricter engine emission standards by the government and mandatory RTO registration of machines has forced some of the smaller domestic manufacturers out of the market, which is consolidating towards hydrostatic, multipurpose machines that are fitted with sensors.?

Government initiatives
The Indian government plans to develop a total of 66,117 km of roads under different programmes such as National Highways Development Project (NHDP), Special Accelerated Road Development Programme in North-East (SARDP-NE) and Left Wing Extremism (LWE), and has set an objective of building 30 km of road a day from 2016. Also, about two-thirds of NHDP road projects (ex-Phase IV) have not been awarded as yet, thus offering a massive opportunity to private players in future. The Prime Minister has set a target of awarding projects for the construction of 8,500 km of highways by the end of March 2015.Against a target of 9,638 km during 2013-14, the previous government managed to award projects of only 3,169 km.

According to Nitin Gadkari, Union Minister for Highways and Transport, the government is preparing to attract investment of Rs 5 lakh crore in the next five years and approve nearly 500 road projects to be awarded which augurs well for the construction equipment manufacturers, especially road equipment OEMs. Recently, the highways ministry has showcased revival of 34 projects worth more than Rs 26,000 crore in its latest presentation on infrastructure targets to Prime Minister Narendra Modi, saying the projects spanning over 4,084 km are being restructured or converted from PPP to engineering, procurement and construction (EPC) mode to get them going.

Currently, about 189 highway projects involving investments of nearly Rs 1,80,000 crore are stuck due to problems of land acquisition, delays in forest and environment clearances, non-transfer of defence land and hurdles in rail overbridges. It is heartening to note that concerned officials of the ministries of highways and railways had to resolve inter-ministerial issues which had delayed highway projects across the country.Palagiri says ?Immediate attention is required towards environmental clearances for BOT projects, the need for long term funding and also addressing the land acquisition issues, to accelerate the growth in infrastructure projects. The bidding systems for BOT projects and especially for the EPC projects need to be rationalised to ensure that only those contractors with technical and manpower competence are allowed to bid for these projects so that once they get the project, they bid more rationally and are executed because currently in some cases, the contractors after being awarded the projects, find that it is no more viable for various reasons, some of which are attributed to their bidding and some to the government. So, definitely the bidding system needs to be rationalised to ensure there are strict pre-qualification norms for submitting a commercial bid.?

The 12th Plan outlays an increase in planned investments by more than hundred per cent from the 11th Plan achievements, driven by higher targets across national highways, state highways and rural roads. It has plans for about 13,000 km of new national highways and 158,000 km of new roads in rural areas. Says Rajesh Nath, Managing Director, VDMA India Services, ?Apart from government spending, private funding has increased from five per cent in the 10th Five Year Plan to 20 per cent in the 11th Plan, primarily driven by factors such as hundred per cent foreign direct investment (FDI) in road infrastructure, 10 to 20-year tax breaks during concession periods and duty exemptions for importing road equipment. The 12th Five Year Plan targets about 33 per cent of the investment to be fulfilled by the private sector. In the current Plan, 3,928 km of national highways and 39,144 km of rural roads have been created till December 2013 to give a big boost to infrastructure industries.?

Says Bansal, ?The initiatives taken by the government to revive the road sector in the country include larger financial allocations and a better policy framework for the execution of projects. It is clearing all hurdles that in the recent past had stalled the road projects, such as problems related to land acquisition, environmental clearances (especially in the border Himalayan region), local political problems and other administrative measures. It is also modifying the Model Concession Agreement (MCA) to attract private investment and is currently awarding EPC contracts to build momentum in the road construction sector.?

Opportunities
The government has approved road projects worth about Rs 40,000 crore ($6.53 billion), including around Rs 20,000 crore ($3.26 billion) highway projects in J&K, Rs 15,000 crore ($2.45 billion) road-building projects in the Northeast, Rs 6,000 crore ($980.55 million) road network in Uttarakhand, and realignment of roads in Himachal Pradesh.

India and Japan have taken steps to improve investment between the two nations. As part of India-Japan Strategic and Global Partnership, the two sides launched a Special Economic Partnership Initiative (SEPI), including the Delhi-Mumbai Industrial Corridor (DMIC) project. The Indian government plans to set up a finance corporation with an amount of Rs 1 trillion ($16.34 billion), in collaboration with Japanese investors, to fund projects in the roads segment. The Japanese partners are expected to have a 26 per cent stake with assured returns of nine per cent, according to an official source.

The Canada Pension Plan Investment Board (CPPIB) plans to invest about US$ 332 million in infrastructure projects in the country through an investment with Larsen & Toubro (L&T). The Toronto-based pension fund manager will first invest about $166 million in L&T?s unit, L&T Infrastructure Development Projects, and later invest an additional $166 million within 12 months of the initial investment.

Looking ahead
The future for the road equipment market in India still holds much potential as this sector has a profound and immediate impact on the country?s economic growth. ?There is a huge moral upliftment for road builders and developers community because of the change in government and the various action plans announced by the government. So we are very much encouraged,? avers DK Sen, Senior Vice President & Head-Transportation Infrastructure, L&T Construction.

?We are very bullish about India?s growth story. The huge quantum of the infrastructure to be developed over a period of time, tells no other story. Even for the metros to sustain for another 25 years, we need better infrastructure, better connectivity. What we need is a stable government that attracts investors; clear cut policy that could speed up the projects to completion,? says Vijay Sharma, Executive Director, Terex 每日吃瓜.

With strong pipeline of road projects to be awarded by NHAI and state governments over the next three to four years, the opportunities for both developers and contractors willbe sizeable, which augurs well for the equipment suppliers. Considering that infrastructure development is a direct result of GDP growth, by 2017, the growth of road equipment division will be around 15 per cent and may increase to 20 per cent by 2020.

Quick Facts 

• Roads and bridges infrastructure in India is projected to grow at a CAGR of 17.4 per cent.
• It was valued at US$ 6.9 billion in 2009 is expected to touch US$ 19.2 billion by 2017.
• For FY14, Planning Commission provided an outlay of US$ 6.9 billion for the roads segment.

Quick Facts

• The financial outlay for road transport and highways grew at a CAGR of 19.4 per cent in the period FY09-14.
• The government estimates around $27 billion plus private investment required over FY12-FY17 to improve the country?s road infrastructure.
• Road construction projects awarded to BOT companies achieved a CAGR of 17.1 per cent over FY06-13.

Quick Facts 

• Motor grader market declined from 550 units in 2007-2008 and to around 275 units in 2013.
• Compactor market declined from 3,200 units in 2007 to around 2,500 units in 2011.
• Asphalt finishers market declined from 925 units in 2007 to around 700 units in 2011.