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Japanese construction equipment firms riding greater demand in India

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Nna/kyodo

Japanese construction equipment manufacturers are poised to take advantage of India’s growing infrastructure investment, planning to boost production capacity and putting new models on the market.

Kobelco Construction Machinery Co.’s Indian subsidiary is planning to double its annual production capacity as it expects demand for heavy construction machinery to increase in the country, which is likely to invest $1 trillion in the infrastructure sector alone in the next few years, according to Vikram Sharma, managing director and chief executive officer of Kobelco Construction Equipment India Pvt. Ltd.

“We are working on doubling the production capacity of our Sri City-based facility in Andhra Pradesh to around 2,500 units per year from the current annual capacity of 1,200 units as we expect the demand for heavy construction equipment to increase in the next three to four years with infrastructure activities in the country likely to get a boost with the proposed $1 trillion investment in the sector,” Sharma said.

“The production will go on stream in the next few months,” Sharma added.

The Indian subsidiary is also planning to launch a new construction equipment model in the country.

“We are currently manufacturing three types of heavy construction machines in India and are planning to introduce another model in the next two years,” said Sharma.

The company is going ahead with the expansion plan despite a pricing challenge with the cost of construction equipment in India being one of the lowest in the world, hurting its ability to generate healthy returns, he said.

“However, that does not mean that all of us are making losses, but certainly the stress is a bit more on that front, affecting our margins,” Sharma said.

“Despite that, we are still planning expansion because the kind of policy initiatives that the government has taken in the infrastructure sector will sustain growth momentum in the sector for a longer period.”

According to another Japanese company, Hitachi Construction Machinery Co., demand for equipment in the country has “significantly” increased thanks to “a continuous increase in infrastructure-related demand such as road and railway construction.”

Under such conditions, Hitachi’s local subsidiary, Tata Hitachi Construction Machinery Co., one of the leading players in India’s heavy construction machinery market, “focused on cost reduction and enhancement of production quality as well as sales promotion of new models and large-sized machines in India,” the company said in its financial statement for the second quarter of fiscal year ended Sept. 30.

Addressing a conference on the construction equipment industry last week, Girish Shankar, secretary of the Indian government’s Department of Heavy Industry, said that with the government planning to build smart cities and modernize its railway systems, demand for construction equipment is expected to rise.

“We have plans to build 50 million houses by 2022. In addition, we are developing smart cities and mega-industrial corridors,” Shankar said.

“We are also modernizing our railway systems including signals, engines and railway stations,” Shankar added. “We are planning metro rail systems in 50 cities and high-speed trains in various corridors. All these activities will boost the demand for construction equipment.”

According to consultancy firm Off-Highway Research, the construction equipment market in India is expected to grow 27 percent to 62,065 units in 2016 from 48,883 units in 2015 and by a further 11 percent to 68,995 units in 2017.

“However, growth will moderate to 10 percent in 2018 and decline by 1 percent with sales of 74,495 units due to the general elections scheduled in 2019. Demand is likely to increase 7 percent to 79,645 in 2020,” said Off-Highway Research’s December 2016 report.