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The demand for compaction equipment from the road sector has remained almost stagnant for the past three years owing to the slowdown in construction activities. Road building projects are currently facing major challenges from delays in awarding projects and policy decisions, land acquisition issues, cash crunch facing contractors, and procedural and approval delays for environment and forests.

Although the Indian economy has shown lower than expected growth in the last two financial years, the situation is predicted to improve in the future. Says Samir Bansal, General Manager-India, Off-Highway Research, "Even though the demand might remain a little subdued in 2014, but in the long term, a steady growth is expected in the compaction equipment market due to the large number of roads, which are still to be laid. The market is projected to increase to 2,700 units in 2014, and grow thereafter at a CAGR of 13.62 per cent to a level of 4,500 units by 2018."

Market structure
The market for compaction equipment increased from 750 units in 2000 to peak at 3,213 units in 2007, but subsequently declined to 2,539 units by end of 2011, and remained stagnant at 2,542 units in 2012 and 2,536 units in 2013.

Compactors
Soil compactors are the most popular and have accounted for the majority of sales. Its share has generally varied between 46-51 per cent of the total compaction equipment market during the last five years. The demand is almost entirely dominated by 10-12 tonne segment, which is mostly used for road applications. Demand for larger machines over 12.0 tonne occur occasionally as it is used for building runways and dams. Although these machines are more productive, they are still viewed as being too expensive for road building, where their utilisation is generally low.

Tandem rollers
Tandem roller's share has varied between 41-47 per cent in the last five years. The 8-11 tonne segment consistently accounted for over 80 per cent of sales, but its share declined to 75 per cent in 2013. Smaller machines with up to 4.0 tonne operating weight, also known as mini rollers, are used for related jobs that would previously have been undertaken manually. The share of this segment has been on the rise over the years and peaked at 25 per cent in 2013.

Pneumatic tyre rollers
The share of pneumatic tyre rollers (PTRs) have always remained small, generally accounting for 1-2 per cent of the total market. The majority of demand is for the class up to 10 tonne, but the customer's preference has changed to over 10 tonne class lately. These machines are used in ballasted condition and generally a 10 tonne machine has a maximum ballasted weight of 21-24T, while a 15 tonne machine may be ballasted up to 28T.

Static rollers
The traditional static rollers have also consistently accounted for a 5-7 per cent share during the last five years. These machines generally weigh 8T and can be ballasted up to 10T. Leading and well known suppliers of compaction equipment do not manufacture static rollers and this segment is served only by small local manufacturers.

Positive developments
The recent election verdict in May saw formation of a strong central government with single party majority (after 30 years), which is better placed for taking faster decisions and has already initiated steps to rejuvenate the infrastructure sector. Says Bansal, "The government has reduced the number of ministries to improve inter department co-ordination and plans to smoothen the bottlenecks in infrastructure development through a monthly meeting of cabinet secretary, principal secretary to prime minister and representatives of ministries/departments such as railways, defence, environment and forests. It also plans to make land acquisition easier and relatively cheaper for infrastructure and industrial projects."

Future potential
Road building is on the top of government's agenda for the immediate and lasting effect that it has on economic development. According to Bansal, the government plans to build 30 km of roads per day after two years compared to a current average of 3 km. He adds, "Over 260 projects amounting Rs 600 billion under PPP model are currently stalled for various reasons, of which a large percentage have become non performing assets (NPA) for the banks. These projects are being reviewed to find a quick solution and the government also proposes to undertake highway projects under EPC model till investment confidence returns."

In a recent development, the Ministry of Road Transport and Highways (MoRTH) has approved over Rs 400 billion of highway projects, which are expected to be implemented in two years time. These projects are in Jammu & Kashmir, Himachal Pradesh, Uttarakhand and the North-Eastern states.

Says Amit Gossain, EVP Marketing, Business Development and Corporate Affairs, JCB India, "In 2014-15, the government plans to award 4,000 km on EPC mode so the project pipeline is certainly robust. With such strong pipeline of road projects to be awarded by NHAI and state governments, the opportunities for the road equipment manufacturers are sizeable." He adds, "Road projects like the Delhi-Mumbai Industrial Corridor will give a major boost to the demand for road machinery. Along with that, road development in the rural sector will also be a major driver in the coming years." In developing markets like India, road infrastructure will be an extremely important component to support the growth opportunities. We hope that the stability of the new government will help in bringing in a culture of faster decision making, accountability and a much better system of redressal," says Prantik Saha, Marketing Manager Road Construction ÁùºÏ²Ê¿ª½±¼Ç¼, Atlas Copco. He adds, "Although road sector project developments are near to nothing, we have seen marginal increase compactor sale. This pertains to few PMGSY project in few states and repairing work of roads. For the growth of India, the first step would be towards establishing infrastructure to support growth. Atlas Copco with its continuous product development and maintenance commitment?is geared up to serve the future demand for the road construction sector."

Says Abhijit Gupta, Managing Director, CASE New Holland Construction ÁùºÏ²Ê¿ª½±¼Ç¼, "There is huge growth potential for compactors as India is developing a lot in terms of its infrastructure. While the construction equipment market looks challenging in the short term due to policy paralysis at the executive level of the government, the medium to long term growth story of this industry is intact." Says Sanjay Wadnekar, Vice President, LiuGong India, "In spite of the several projects been delayed due to financing reason, we are very optimistic about the future prospects of the road industry and hence the opportunities of compaction equipment in India. The government investment in infrastructure is sure to pick up to meet the ambitious plan of nation."

Bansal sums up, "The simple truth is that there is a massive amount of work yet to be done in the road sector, which will require large volumes of equipment for completion. However, government's effectiveness in facilitating project execution and addressing the key impediments will be crucial to revive the sector." (Input Courtesy: Samir Bansal, GM-India, Off-Highway Research)

SOME KEY ACTIONS TAKEN BY THE NEW GOVERNMENT

• Online environmental and forest clearances for speedy and transparent process.
• E-tendering of projects is being encouraged along with time-bound implementation.
• Creation of infrastructural assets through Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA)."