The government has proposed Rs 10 lakh crore capital expenditure (capex) for the current financial year, which is 37.4 per cent higher than the revised estimates for 2022-23. The focus on infrastructure development augurs well for construction equipment manufacturers. However, elections and political uncertainties cast a shadow. In an interview with DH’s Gyanendra Keshri, Tata Hitachi’s Managing Director Sandeep Singh elaborates on construction equipment sector growth outlook and the impact of elections on the pace of infrastructure development. Edited excerpts:
What is your outlook for the construction equipment sector this fiscal?
In the financial year 2022-23, the construction equipment sector recorded a growth of around 15 per cent. If we take into account the exports of equipment done by dealers, the growth comes out around 20 per cent, which is very good growth. However, you have to note that this was on a low base. In the current year, that is 2023-24, we are targeting around 10 per cent growth. Our major concern is fluctuations in growth. For example, the first half of 2022-23 was not good at all. But the strong demands in the second half of the year not only made up the losses but resulted in pretty good numbers overall. Similar trends we are seeing this year also. April was not good. It’s a very oscillating situation. We are happy as long as we get an average growth of around 10 per cent
How will the government’s focus on capex impact the industry?
The growth of the construction equipment manufacturing industry is linked to the demand drivers. Our main demand drivers are road construction, irrigation, urban development and mining. All these are among the high priority areas of the central government. For this fiscal, the government has proposed in the budget to increase capex to Rs 10 lakh crore. Now the thing is whether the government will actually be spending that money or there will be diversion as has been the case in the previous years due to the contingencies like Covid.
Can you elaborate on Tata Hitachi’s growth and investment plans?
We have two manufacturing units. One at Dharwad in Karnataka and the other one at Kharagpur in West Bengal. The combined production capacity of these two manufacturing plants is around 10,000 machines. However, it can be easily ramped up to 11,500 if we increase shifts, etc. This production capacity we have for the last 5 years. We have been running at 50 to 75 per cent capacity for the past around 4-5 years. This is not unique to Tata Hitachi. Most of the OEMs are working at 60-70 per cent capacity. So new investments are not planned on capacity expansion. However, we keep investing in new models, automation and introduction of new technologies. For the past four-five years, on an average our capex stands at around Rs 250 to 300 crore. This year we are looking at around Rs 300 crore.
How do Dharwad and Kharagpur units compare in terms of investments and production?
Volume wise it is 60:40. This means around 60 per cent of all our machines are manufactured at Dharwad, while the rest 40 per cent is produced at Kharagpur. Value wise it’s 50:50. At the Dharwad unit, we manufacture smaller machines in the category of 2 to 20 tonnes while the bigger machines 20 to 120 tonnes category are manufactured at the Kharagpur unit. The largest demand is for 20 tonnes equipments, which account for 58 per cent of the total sales. The 20 tonnes machines are manufactured at both the units. The machines above 20 tonnes capacity are mostly used in mining. All the equipment supplied to the mining sector is produced at Kharagpur plant. The investments in both the units are almost the same. Our planned capex is also equally distributed.
How do you see the impact of the government change on infrastructure development projects in Karnataka?
In Karnataka, we sell about 80 odd machines every month. Before elections we normally see an upswing in sales. During the election process and a couple of months after the election there is some lull and the sales pick up again. Whether it’s a state assembly election or the central election, this upswing and downswing is normal, which we take in our stride. In Karnataka the tax collection is high. The deficit is not big as is the case with many other states. So the state government has the capacity to spend. We expect continued focus on infrastructure development, especially roads, airports and ports in Karnataka. This augurs well for the construction equipment manufacturers.