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Caterpillar, the construction equipment major, has been active in India since the 1930s. Today, Caterpillar India employs more than 10,000 people and its state-of-the-art manufacturing facilities are located at Hosur, Thiruvallur, Pondicherry and Aurangabad. Ajay Shankar, in an email interaction with Sandeep Menezes, talks about the prevailing scenario in the construction industry and its impact on the construction equipment market.
The Planning Commission aims to double India’s infrastructure investment to about $1 trillion during the 12th Plan. What are the current and future growth prospects in the construction equipment market?
According to Business Monitor International, the FY2012-13 growth forecast is 6.0 per cent for the Indian construction sector. This has been attributed to non-conducive monetary conditions, policy inertia and lacklustre infrastructure activity which have continued to dampen construction activity for the rest of FY2012-13. However, the outlook for the construction sector beyond FY2012-13 is getting better. Not only are monetary conditions likely to improve for construction companies in FY2013/14, but the government is also making pertinent efforts to remove bottlenecks that are delaying infrastructure projects in India. The current forecast for real growth for India’s construction sector is 7.6 per cent in FY2013-14.
Delays in project execution due to pending clearances and other hurdles have made contractors wary of committing huge capex on equipment.
The general mood in the construction equipment segment is that there is a fleet of idle machines which are not yet deployed, as a result deferring any new purchases. We expect that to change due to the movement from the government side in accelerating investment in infrastructure projects.
According to industry bodies, 994 km of highways has been awarded where work has to be started and 17,103 km of highways has to be awarded in 2013-14 and beyond. This will drive the demand for earthmoving and construction equipment depending on the general elections that are scheduled to be conducted next year. We believe that Caterpillar and its dealers are in a good position to help meet this demand.
What is Caterpillar’s long-term strategy in India?
Caterpillar is optimistic about India given the growth potential of the economy and our company hopes to be well-positioned to serve customers in this important Asia-Pacific market. Our employees and suppliers have done a great job taking care of our customers, but we have to be prepared for recovery in the developed world beyond 2013-2014 and continuing growth in emerging markets.
Does Caterpillar intend to launch new products in India?
We recently launched the Cat 320D2 which is an upgraded version of its predecessor 320D. Growing customer demand coupled with the cost saving features that the Cat 320D2 boasts of has triggered the launch of the product. The new Perkins facility in Aurangabad is soon set to begin manufacturing its powerful 4000 Series engines in India. Initially, the facility will have capacity to produce around 3,000 engines per year with the capability to increase to 5,000 units. We also have plans of launching other products in India which are in the pipeline.
Caterpillar’s strategy in India has been to provide the lowest total owning and operating lifecycle costs. However, Indian customers mostly only look at initial costs.
It is true that the majority of Indian customers look only at initial costs. At Caterpillar, we offer premium products which focus on productivity, efficiency, longevity, and effectiveness. It is the value that Caterpillar and its dealers bring to the customer. We have been engaging with our customers and educating them about the owning and operating costs and advising them to look at the long-term benefits vis-à-vis the short-term ones. All our major customers understand this and we are seeing the change of mindset in newer customers as well.
Caterpillar currently has two dealer network partners, TIPL in the north and east and GMMCO in the south and west of India. What are your plans to increase the number of points of sales and service centres?
We have eight territorial dealerships across India owned by GMMCO and TIPL with 172 dealer outlets currently. These territorial dealerships ensure greater focus and better coverage within each of their territories for sales (prime products and parts) and service support. They have the necessary capability to provide support to a broad base of our customers including construction, mining and energy.
Our availability vision is to be within a 100 km radius of our customers. We have experienced more than 30 per cent growth in the past 2.5 years and expect similar growth to occur over the next three to five years.