The market for construction and mining equipment is poised for growth, says Devendra Kumar Vyas, CEO - Financial Services, Srei Infrastructure Finance Ltd.
What are the implications of the new GST regime for the construction and mining equipment sector once it is launched by the next fiscal year?
GST aims to bring unanimity in taxes and eliminate the hurdles of varied taxation within the country.
It promises a unified single tax structure which helps put a curb on the total tax incidence and evasion, and enables free movement of goods within the country. The economic benefits of GST will be all-pervasive and infrastructure should be no different. Depending on the GST rates finalised, the cost of construction materials may go down by 5 per cent to 10 per cent. This should help abate the cost of construction. The real winner will be the real estate segment where both the developer and buyer presently pay a myriad of non-creditable taxes. GST will reduce the cost of construction incurred by the developers and thereby help in reducing the property prices. It will also give a fillip to leasing activity which is currently plagued by both sales tax and service tax being imposed on the same transaction. GST will resolve this problem of dual taxation and a significant beneficiary of this will be the construction equipment segment. Efficiencies in supply chain and logistics, and a uniform tax regime, will further boost the construction equipment sector, which is already witnessing a revival.
What are the growth levels (market share) envisaged during the expansion of capacities in the mining and construction space within India in the wake of changes/amendments to the Mining Act and a general ease of doing business being ushered in to the construction business sector?
The amendments in the Mining Act cover some crucial points. Now, there can be transfer of mining leases, which were granted via non-auction procedures and the mineral mined was for captive purposes. This will facilitate many mergers and acquisitions of companies with captive mining leases. The amendment also improves upon the definition of ´leased area´, helping in ease of land acquisition. The government has also started a lot of initiatives to boost mining activities. Online transparent auctions and opening of non-captive commercial mining are some of the initiatives that will help the mining sector. As per industry estimates, by FY2020, coal mining production will be increased to 1.6 billion tonnes per year and iron ore mining will be increased to about 200 million tonnes per year.
Which mining products would form a major portion of your mining equipment financing in the wake of the high demand situation for the same over the next four years owing to the increased applications in the metal mining industry?
Before talking about the equipment for mining industry, it is pertinent to talk about the activities which had hampered the mining production in the last few years. With the coal block allocation scam and other hurdles, mining production slowed down. Mining activities are now seeing a turnaround and we are seeing a pick up in mining equipment sales. Excavators and dumpers form around 85 per cent of the earthmoving equipment sold for mining activities. Going forward, these equipment will continue to be part of our mining equipment portfolio.
We also expect increase in the sales of dump trucks with the increase in mining activities, as they are an important part of the mining ecosystem. As per industry estimates, the market for earthmoving equipment for mining increased around 15 per cent in FY2016, and should maintain the rate for the next couple of years.
For the past few months, mining output has slowed down as compared to the targets set. But that is due to a small dip in the coal outtake. From calendar year 2017, the demand should pick up once again.
With cement players indicating expansion plans to keep pace with the increasing demand for infrastructure projects and Smart Cities in the country, how is this expected to impact the mining/construction equipment business?
About 60 per cent of cement produced in India is used for concrete production. Ready Mix Concrete (RMC) accounts for hardly 7-8 per cent of this concrete demand, as compared to developed nations, where it accounts for almost 70-80 per cent of the demand. The sales of concrete equipment are directly correlated to the growth of the RMC market. Therefore the scope of growth for concrete equipment is huge. As per industry estimates, the market for concrete equipment grew at around 19 per cent in FY2016, and until 2020, concrete equipment should grow at a CAGR of about 15-20 per cent.
Infrastructure and manufacturing activities consume about 40 per cent of the cement demand. In the past year, the road sector has seen a lot of traction, giving a boost to infrastructure activities. The result can be seen in the increasing demand for cement. Cement production in FY2015 was around 270 million tonnes, and increased by around 5 per cent in the last fiscal. In the coming fiscal, cement demand is expected to maintain a rate of 6 per cent. India´s current demand of around 290 million tonnes is way less when compared to China´s consumption of 1,400 million tonnes. So with increased infrastructure activities, we should see an increase in cement demand and hike in demand for concrete equipment.
What is the role of newer technologies towards creating better cost efficiencies for the construction and mining business?
Construction and mining equipment are products of heavy engineering. Today there are a lot of new developments in the hardware and software to provide services for maintenance of construction and mining equipment. Telematics is the most prominent of these services. To increase the safety of the labourers and increase the efficient use of the machinery, telematics provides holistic solutions on asset tracking and usage.
Construction and mining activities require the machines to work in arduous conditions. Robustness is a critical parameter of the equipment´s design. Data analysis of the existing equipment´s usage will help in better designing and usage of the machinery.