Earth movers gravitate towards rural India

The construction equipment and commercial vehicle industry are considered to be among the barometers of economic activity in a country. While truck-makers have reported a revival in certain segments in India, the manufacturers of earth moving machines have also seen demand rev up.

All of JCB’s 90,000 backhoe loaders that are with their owners are back in action after a blackout of nearly two months. Rural and semi-urban pockets are leading the charge, helped by a fresh push by the government under schemes such as MNREGA and PMGSY, a top official at JCB, India’s largest construction equipment manufacturer, said in an exclusive interview with Moneycontrol.

Green shoots?

“We monitor the utilisation of our machines on an everyday basis. We have almost 90,000 connected backhoes in the field using telematics,” said Subir Chowdhury, Managing Director and Chief Executive Officer, JCB India. “In the months of April and May their activity went down to zero. But in June we saw a ‘V’ shaped recovery, which was better than even June 2019. In July, due to the onset of the monsoon, the utilisation slowed down but it was still on par with the July 2019 level”.

Backhoes, which are a common site at real estate sites, are wheeled excavators used extensively in earth-moving operations. Several of these backhoes were put to use in the construction of bunds, creation of water bodies and construction of rural roads in June and July, according to Chowdhury.

JCB’s other product, tracked excavators, which are used for heavier loads, also saw usage shoot up to 80-85 percent in June and July, indicating signs of an economic revival.

Construction equipment industry

Following bumper production of rabi crops till June and encouraging sowing of kharif crops so far, even sales of new earth-moving machines have gathered pace. In June, JCB sold a little over 2,000 machines, on par with its June 2019 sales. Sales in July recorded a further improvement of 10 percent, in line with July 2019.

In 2017, the construction equipment industry in India recorded sales of 61,000 units, which grew to 82,000 units in 2018. Due to the slowdown in the economy, sales in 2019 dropped to 69,000 units.

JCB’s 2019 tally stood at 37,000 units, a reduction of 15 percent from 2018.

“We would be lucky if we get to 50 percent of last year’s sales this year. But everything depends on the October-December quarter because traditionally it is the strongest quarter for the industry besides the January-March quarter”, added Chowdhury.

Going slow on projects

Due to the disruption caused by Covid-19, JCB has put some of its projects on the backburner, while cutting down capital expenditure “significantly” for the year. A Rs 650 crore, export-oriented parts manufacturing factory in Vadodara, Gujarat, has been put on hold.

“We started construction of our fourth site at Vadodara, where we planned to have a component manufacturing facility. We had to shelve that project along with many of our other programmes for the time being to conserve cash. We had to reduce capex significantly besides reducing our discretionary expenditures like advertisements,” added Chowdhury.