Following sharp dip in demand for construction equipment in India, JCB India Ltd, the country?s biggest construction equipment manufacturer and a 100% subsidiary of the UK-based JC Bamford Excavators, has cut down production at its three manufacturing plants

The global financial crisis has hit the $3.1-billion construction equipment industry that has a direct link with infrastructure projects. More than a dozen equipment makers, who control around 90% of the market, have started pruning their production, while knocking at the doors of the government for sops.

JCB India managing director and chief executive officer Vipin Sondhi said the company has cut 20% production to keep inventory under control at its plants in Pune and Faridabad. The turnover of the company is expected to decline by 20% in the current year compared with Rs 3,000 crore in the last year. Both demand and supply in the sector are affected, Sondhi added.

While lack of finance hit equipment supply to customers, slowdown in infrastructure projects has dragged down the demand for construction equipment. Lending from financial institution is mandatory as 90% of the equipment are purchased on loans.

According to a recent CII presentation, JCB and Telcon (a 60:40 joint venture of Tata Motors and Hitachi) top Indian construction equipment market, each owning 19% market share. L&T with 18% market share ranked three followed by the PSU BEML with 13% share. The Caterpillar and Volvo have a share of 10% and 5%, respectively.?The construction equipment industry that witnessed a growth of 35% in the past seven years recorded a decline of 30% during October to till date this year,? said JP Nayak, president of L&T (machinery & industrial products).

According to a McKinsey report, the excavator sales stood at 9,089 units in 2007 and projected to touch 14,000 units in the current year, 19,000 units in 2009 and 25,500 units in 2010. However, currently the excavator business declined by 40% while the backhoe loaders demand tumbled by 60%, Nayak said. The business of equipment used in the real estate sector witnessed a major jolt, he added.

?Every manufacturing unit will try to bring the production in line with the sales requirement. The manufacturers will produce exactly what is required in the market,? he said.

L&T?s 18% sales come from product and services while 82% comes from projects. ?If we get affected (in product business), we will adjust our production in line with the demand, ?Nayak said. The product business, however, is a minor part of the company?s revenue and any decline in product business would not affect the company?s overall performance, he added.

Despite the current slowdown, he said, the construction equipment business has a bright future as according to Planning Commission estimates, investments of up to $492 billion are required for infrastructure projects by 2011-12. The government has proposed to add 78,577mw of power, develop more than 4.2 lakh km roads, 21,000km railwaylines, modernise and redevelop 38 airports and construct four major ports. Also, $1,000 billion infrastructure and capital spend is planned in the next 8-10 years, he added.

Bangalore-based Wipro Infrastructure Engineering Ltd CEO M Anurag Behar said, ?We have deferred the investments (of Wipro Infrastructure). We are holding tight till the time there is a greater visibility. We think investments are required but would it be required over the next 6 or 24 or 36 months – we are not sure.?

Wipro Infrastructure manufactures precision engineering hydraulic cylinders and truck hydraulic solutions for the infrastructure and related industries at its plants in Bangalore, Chennai, Indupur, Sweden and Finland. The company is adjusting its production according to the market conditions, he added.

Endorsing this, Volvo managing director Mrityunjaya Singh said sales of construction equipment division is below forecast. ?Hence, our approach to 2009 is very pragmatic. The forecasts are trying to understand the real demand and our production facilities are going to match the demand.?

Vikram Sharma, president and chief executive officer of Kobelco Construction Equipment India Pvt Ltd, said the government should consider according ?priority sector status to the equipment industry to enable it borrow money at easier terms while the RBI should consider a softer interest fund for NBFCs inorder to finance equipment makers.

Among other sops expected by the industry, the government should ensure certain percentage of commercial bank lending for the industry and should set up a quasi bank institution for customers to receive funds at 8-8.5% interest. The industry expects VAT difference across states are abolished and reduced to 4% while also abolishing entry taxes and octroi on domestic supplies. In addition, the industry is having dialogue with the government to regularise the imports of goods.

• The global financial crisis has hit the $3.1-billion industry that has direct link with infrastructure projects in the country

• The equipment industry, which witnessed a 35% growth in the last seven years, recorded a decline of 30% during October to till date this year

• However, the construction equipment industry has a bright future as investments of up to $492 billion is required by 2011-12 for infrastructure projects as per a Planning Commission estimation