CE majors bullish on uptick in road building

Based on momentum since the start of the year, road building could touch 40 km a day. But headwinds in terms of fuel prices may dampen sentiments.

By Shahkar Abidi calendar 18 Apr 2022 Views icon5014 Views Share - Share to Facebook Share to Twitter Share to LinkedIn Share to Whatsapp

The increase in the pace of highway road construction activities in recent months augurs well for the construction equipment sector, says Sandeep Singh, managing director of Tata Hitachi, a leading construction equipment manufacturing company. He said that new roads are being on an average of 30-32 km daily in comparison to about 25 km a day earlier. If this momentum is maintained, India could be building up to 40 km per day within a span of six months, says Singh in an interaction with Autocar Professional.

These developments are a positive sign for India's road construction industry which lost some of its steam in the last fiscal year. The reasons include the second wave of the pandemic and the lockdowns and curfews that followed. Road construction activities require movement of men and materials such as cement and steel, and with these slowing down considerably, road construction activities hit a roadblock.

Until February 2022, it is estimated that highway road construction touched 8000 km which is much lower than the targeted 14,600 km for the entire period of FY22, industry data suggests. In contrast, 13,298 km of road construction was completed in FY21 primarily on the back of huge infrastructure spending by the central and state government. The reasons include liquidity crunch, transition to new emission norms and the lockdowns due to Covid 19, amongst others, that led to the slowdown during FY22, however now seem to be on the mend, industry stakeholders noted.

Tata Hitachi's Sandeep Singh: "With banks insisting on higher deposits or guarantees, buying construction equipment has become a challenge for first-time buyers."

In Singh’s view, the reasons for the uptick in road activity is the improving liquidity situation as against a few months earlier when banks and NBFCs were hesitant to lend amidst the tightening economic situation. "The only issue, for now, is for first time buyers of equipment, and that too from the lower end of the segment. With banks insisting on higher deposits or guarantees, buying construction equipment has become a challenge. This is not the case with high-end buyers, "he says.

Like the automotive sector, the transition to new emission norms also affected the construction equipment sector. As Singh explains it, the initial shock over price increase which were of the order of about 12-15 percent across the board, seems to have got muted. Singh, says that a marginal improvement in machine uptime has helped as it has led to an increase in rentals by about 10-15 percent during the same period.

Tata Hitachi, one of India’s oldest construction machinery companies and excavator companies offers a product line up ranging from 2- 120 tonne excavators, wheel loaders and backhoe loaders sold under the brand Shinrai. The company makes these products at its plants at Kharagpur and Dharwad. Apart from this, Tata Hitachi has also set up a captive remanufacturing facility to provide customised solutions to customers with attachments, refurbished aggregates and certified used equipment that aims to improve efficiency and lifecycle of the machines.

According to industry leaders at the EXCON road show, the ongoing developments must be seen in context of the recent union budget announcement that has earmarked funds for the expansion of the national highway network by 25,000 km during the fiscal year, and of which Rs 20,000 crore is to be mobilised through innovative financing measures.

Recent events will however have an impact on growth. As a result of the Ukraine war, crude prices have gone through the roof. That apart, a slew of factors will have a bearing on the performance of the sector including volatility in commodity prices, a spike in ocean freight and foreign exchange depreciation.

For instance, with crude prices continuing to remain on a higher level, the present regime will be sooner than later forced to reduce taxations on the auto fuel, which could then have a ripple impact on its funding of infrastructure related projects, claim industry stakeholders.

The budgetary support to National Highways Authority of India in the current fiscal is up 106 percent over Rs 65,100 crore in FY22 as per revised estimates. The government's decision to fund NHAI came due to the mounting debt which currently stands at around Rs 3,50,000 crore. Another area of concern is whether or not the projected contribution from cess funds can materialise.

The feature was first published in Autocar Professional's  April 15, 2022 issue.

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