JCB India Ltd, India's largest construction equipment manufacturing company, has projected that its revenue growth is likely to slow down to 15 per cent in 2011-12 financial year after showing record sales growth last fiscal.
Vipin Sondhi, Managing Director, JCB India Limited explained to Mahesh Kulkarni the reasons for slowing sales this fiscal and the prospects ahead for the construction equipment industry. Edited excerpts:
The year 2010 was a record one for JCB in terms of sales. How has been 2011 and what is the outlook for 2012?
The year 2011 is also going well for us. Let me talk about 2012 first. I think there are very clear headwinds ahead. The high commodity prices are not showing signs of coming down, and the continuous increase in interest rates has had great impact on sales.
But, the positive part is liquidity is there in the system. I think as long as liquidity remains, there will always be demand and sales will take place. What we expect is for growth to slow down to about 15 per cent in 2011 and 2012. However, it does not mean that new projects should not be cleared. New projects need to be cleared. Because there is this gap of policy logjam, whether it is land acquisition or environmental issues, new projects were not moving. The area we see some movement is in road projects and we expect some momentum next year.
India is set to see an investment of $1 trillion on infrastructure in the 12th Plan. What are the prospects for the industry?
If the $500 billion were targeted in the 11th Plan, the understanding is that about 85 per cent of that is being spent by March 2012, which has given us a compounded growth of 18 per cent, between 2005 and 2010. But, remember that 2009 was a downturn year. It had never happened before. Suddenly, Lehman Brothers went down and the liquidity got affected.
In the vision 2020 document Accenture has projected a CAGR of 21 per cent. Now there will be ups and downs. It could be 30 per cent in one year and 10 per cent in one year depending on projects.
All of this is triggered by the fact that there will be an investment of $1 trillion for five years. And hopefully for the next five years, it will be at that rate or more sequentially. This augurs well for the industry, because inherently there is a demand.
How much of this you think could be spent in the next five years given the expenditure on infrastructure in 11th plan?
Whether it takes place in five or six years, it depends on the projects. These are large projects driven by the government. It depends on how projects are done on the ground.
We are confident that citizens are demanding better roads, airports and seaports and better railway stations. It is cutting across party lines, the policy may be a little different from each. But the fact that India has to be built. I don’t think anybody is arguing against it.
What is the mood currently among the stakeholders of the construction equipment industry given the slowing pace of economic growth?
Cautious optimisim. There will be growth but there is caution because of the headwinds that I mentioned earlier and of course the external uncertainties as well that certainly affects certain part of our economy. Those are dependent on exports like software or physical exports so that certainly lends a bit of caution.
Accenture study has estimated a $23 billion business opportunity for CE makers by 2020. How well are Indian CE makers positioned to exploit this opportunity?
If you look at it Excon itself, the exhibition has grown by 50 per cent in terms of area. People would not take more area unless they have more machines to show, which means more and more machines designed and developed for India.
JCB, on its own, is making sure that we have got several new machines in all product categories this year. And product development and product for the market will be a great emphasis for JCB and I am sure it is for others as well.
As far as JCB is concerned, how well equipped are you to make deeper inroads into the market?
If India is to be inclusive and India lives in villages and if we are to connect villages with cities so that there is as much of movement that is taking place especially for food products and to move food products before they perish.
That is extremely important to have connectivity. These machines require parts and service to be available wherever the machines are working. If the machine is working deep in India and where there is no parts and service, obviously the concerned manufacturer will receive a disgruntled customer. We don’t want it. So, we have doubled the number of parts and outlets in the past five years from 200 to 400. And that emphasis on increasing and going deeper and deeper will continue. We invest in it through our dealers. We have got 6,500 people employed through our dealers. It’snot a small number. But, the issue is not employment. The issue is of training and giving them right tools to diagnose in the field away from their offices when a machine needs attention. That’s the challenge and that is the key.
Do you see any scope for further expansion for JCB next year?
We don’t forecast into the future. We have created enough capacity during the downturn in the last few years. Last year we created capacity for engines and two years ago we created capacity by building the world’s largest back office facility. And three to four years ago we created extra capacity.
All of this was done during the downturn. And now, we are utilizing this capacity. We are now working to bring out new products and to ensure our dealers continue to do what they have to, which is offer parts through our service outlets.
The capital expenditure plan has been completed till we utilize the capacity. We can churn out close to 29,000 machines per annum and we are still to utilize this capacity. Last year, we touched 21,000 machines and this year, we will grow by about 15 per cent on that.
What kind of investments the industry needs to make to exploit the opportunities in 12th Five Year Plan?
I don’t have one number, which says that we need to invest so much for the industry.
Indian CE market is already having an access to the technology, as most of the big players from around the world are here to manufacture. The question is can we adapt the technology and can we do it at a speed. Five years ago, the Indian CE industry was much smaller. But, yet we were able to keep pace. Now, we are much more geared up to do things better as the momentum is much higher. But, we are adapting and moving further.
