‘I hope the government works effectively to clear projects’

I hope the government works effectively to clear project

Greaves Cotton Limited is one of India’s leading and well-diversified engineering companies. The company’s core competencies are in Diesel / Petrol Engines, Gensets, Pumpsets and Construction Equipment.

Sunil Pahilajani, MD & CEO, Greaves Cotton Ltd and R. Nandagopal, Chief Executive Officer, Construction Equipment Business, Greaves Cotton Limited speak to Sandeep Menezes about the current and evolving scenario across the construction equipment segment.

Excerpts from the interview:

Although the equipment industry is not growing currently, what growth do you foresee post elections?

SP: Everyone seems sure that there will be no growth until the elections but I am hopeful that in next few quarters the market will start picking-up if the government clears few projects. I hope that the government works effectively to clear projects. Everyone is waiting for projects to get cleared.

But even if projects do get cleared it will still take few quarters for the beneficial effect to be witnessed in the construction equipment segment?

SP: May be, but then equipment procurement can start. Once projects commence, the purchases that are on hold will start to materialize. The movement will start once this pipeline of pending projects is cleared.

RN: One should not look at mega projects alone. If you look at certain states like Tamil Nadu for example they have a Rs 8,000 crore World Bank funded road construction project. Since its World Bank funded its time-bound and the money can’t be diverted elsewhere also. Therefore the money has got to go into roads and the government has already begun the process of tendering.

The government had also announced around Rs7,000 crore for other road projects also, which are urban roads, state highways and road expansion projects. Of which 30 plus tenders were already being finalized.

Therefore we are witnessing certain state level activities happening. If you look at Cochin in Kerala for example – there is lot of activity in terms of the metro that is happening. A couple of highway projects that have been for years pending have started taking-off.

Tell us about the increased pricing pressures from customers because of the current flat market?

SP: That is not required because we all compete especially when the market-size is small. Therefore we as an industry take care of it rather that the customers.

How has the Rupee depreciation impacted the industry?

RN: If you look at most of the construction equipment manufacturers, it is found that most of components especially hydraulics are imported. The high value hydraulics or control systems continue to be imported with most being European. Therefore most construction equipment manufacturers must have taken at least a 10 to 15 per cent hit on costs due to Rupee depreciation.

On the contrary hasn’t Rupee depreciation actually thrown open a huge exports market by making locally manufactured products cheaper?

SP: Yes it has made exports more advantageous. Therefore we have also been trying to look at the overseas market to ensure higher exports.

Around 90 per cent of equipment sales are routed through funding from financial institutions. How has the recent hardening of interest rates affected the equipment market?

There has not only been a hardening of interest rates but also been a tightening of screening of applicants. Therefore we have now tied-up with six major financers for funding our sales.

The sales are cleaner these days. Like earlier the margin money used to be very less with nearly 90 to 95 per cent funding – this type of funding does not happen anymore.

The applicant screening has been tightened therefore the machine ultimately becoming a NPA (Non Performing Asset) is minimal because no financer wants to increase its NPA.

Therefore it has had an impact in terms of number of sales but whatever sales are happening are good sales.

What is the current quantum of trained equipment operator shortage across the industry?

RN: In the construction equipment segment operator shortage or skill level has been a burning issue since long. On many occasions, the machines are good – but one can’t get the best output from the machine because the operators’ skill level is low. The operator can operate the machine but can’t optimize the machine because his skill level is low.

Greaves Cotton has launched a new pump in this challenging market scenario. Isn’t this a bold move?

SP: Product launch and R&D should not have any co-relation to the market scenario because ups and downs are part of the cyclical nature of any market and it will continue. Also there is an opportunity to export this product to Middle-East and other locations. It’s also cost effective to produce in India – even our Korean partners who provided the technology are keen to buy-back from us.

How do foresee current sales vis-à-vis last year?

SP: Up till now we have remained flat. I can’t predict about the future but we are making our efforts. Growing export business, launching new products and finding new customers – all these are our aggressive efforts.

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