In an interaction with ETAuto, Varma says that whenever countries raise emissions regulations, the market for existing product lines gets smaller and smaller. On the agri machinery side, which holds the largest chunk of business in India, the company is all set to add production of another 10,000 tractors at its Noida plant by the middle of next year. Edited excerpts:
Q: When many companies are postponing new launches mainly because of the Coronavirus crisis, what prompted you to go ahead and venture into a new segment?
A: As a company, we draw up our strategic plans that are not short-term events. Excavator is essentially the largest segment in the Indian construction equipment industry by value. Not having a product in this segment for us was sort of a disservice to our customer base though we own the technology for a very long time. What we have brought in here was part of the strategy to be a full liner in India and provide our customers with global and world-class products that are suited for Indian conditions.
There will always be certain events that will disrupt the economy. I think the fundamentals of the Indian economy related to the construction equipment industry are quite strong. And if we have the right policies by the government, we believe that can bounce back quickly. We already see that. I think the backhoe loader market is coming back quite robustly. Since August we are on par with last year, and since then we have been above last year. We expect this momentum to continue next year.
There is sufficient momentum, and there is no reason to deter us from deviating from our strategy of being a full-liner in India.
Q: What is the size of the excavator market in India? CASE Construction launched its first product in the 22-tonne segment, so what are the next categories within this space the company is focussing on?
A: At present, the excavator market is roughly 25,000 units. We had a decline last year due to market conditions, and we hit around 20,000 units. This year I anticipate that industry will further come down to 15,000 units.
In India, 20-tonne excavators hold 60 % of the overall size of its market. We introduced our first product in the 22-tonne range, which is the premium range within the 20-tonne excavator market. The premium segment’s size is 5,000-6,000 machines and has the potential to grow 2-3 times from its current size.
We entered this particular space because we believe that as the emission change will occur the market will move towards electronic engines, and this is the right place for us to be in and establish our product.
We also have plans to grow to different product segments within the excavator in the higher tonnage and lower tonnage. For now, we are studying the 13-tonne and 30-tonne range for our next launch.
Q: What is the bifurcation of your agri machinery and construction equipment business in India? Also, you have some firm exports commitments from India, can you shed some light on this?
A: Our domestic construction equipment holds a third of our overall business in India. There is an export which is going to get a big boost with the inclusion of excavators. For the construction equipment segment, the export-mix is lower than the agri segment where close to 35-40% of our output is exported. With excavators’ addition, we will reach a similar mix like 60:40 between domestic and export in the next 2-3 years.
For our business, any supply to SAARC countries is considered a part of India’s business, and we do not term it as export. When we export, it means the unique product that we produce for Australia, Middle East, Africa, South East Asia and Russia, North America where we sell out agriculture tractors.
We are also starting to look at TLB (Tractor-Loader-Backhoe) production to go to NAFTA once we have the mechanised engine. Our goal is to allocate 40% of our production to export, and we are completely open to expanding our capacity. We are increasing capacities in both construction and agri segments to meet the demand in India.
Q: Rural markets have fared well in the past months, and we have also started seeing the resumption of construction activities. So are you planning any capacity ramp-up at any of your plants in India?
A: We have three plants here in Noida, Pune and Pithampur. In Noida, we essentially manufacture tractors and components like engines, axles. In this facility, we manufacture about 50,000 tractors. Seeing the growing demand from rural markets, we have decided to ramp up production to 60,000 units by the middle of next year. From this facility, we are aiming to reach 100,000 tractors in the near term.
However, this year we will end up with 43,000-45,000 tractors, including exports, due to Coronavirus.
The Pithampur plant caters to all the requirements of construction equipment. In this plant, we manufacture backhoe loaders and heavy compactors and now excavators. Here we are producing 7,500 units of backhoe loaders out of which 5,000 units meet our export needs.
India is 3% of our global business, but the way the Indian market is growing, we are not seeing the global market coming at the same paceRaunak Varma, Country Manager for India, Saarc, CNH Industrial
For vibratory compactors, we have a capacity of 3,000 units and today we produce 2,200 units. This number will grow in the coming months as we are demonstrating our products to new export regions.
On the excavator side, we intend to sell about 200-250 machines in the first year. Next year, we plan to do about 500 units of production of 22-tonne excavators and 50% of this will be allocated to exports to South East Asia, Russia, Africa and so on. In this category, we plan to produce 2,000 units in the short-term with additional investments in Pithampur.
Pune is our newest plant which was a greenfield project that got commissioned in September 2017. We are using this facility for harvesting products which means combine harvesters and sugarcane harvesters.
Pithampur and Noida are highly utilised plants, and they do not have too much capacity to offer. I think Pune is an opportunity we have for both the components of global production and for meeting any shortfall in the other two plants.
Q: So, how much is the company investing for all these ramp-up activities?
A: In terms of joint investment, we have invested over INR 3,000 crore in the past five years. We invest not only in manufacturing capacity but also in network capacity, product and R&D. We are also setting up a global R&D centre in the NCR region shortly. Strategically India is a very important part of CNH Industrial footprint.
For the new excavator segment, we have invested INR 150 crore. Another INR 100 crore will include the launch of the R&D centre and expansion of agri machinery business.
Q: How much does the Indian market contribute to your global business?
A: India is roughly 3% of our global business, but the way the Indian market is growing, we are not seeing the global market coming at the same pace. Strategically, we are sourcing a lot out of India our competitive products and components, and through R&D research centre, we also have services sourced out of India.
Q: CNH has an extensive presence in tractor and backhoe segments. Is there any white spot in your existing product portfolio that you want to fill immediately?
A: In the backhoe loader segment, we have a full range of products. With the emission norms coming in, there will be a lot of consolidation in the 75 HP range where we are very well positioned.
With the increase in backhoe loaders’ price, there is a possibility that demand for smaller machines such as kit loaders will gain traction in the next 1-2 years. Although currently, this area is very small volume-wise, the dynamics will change post-CEV BS-IV norms implementation, and we are ready with some good products for this category.
For tractors, the product changes with every 2HP. There are certain gaps in our product portfolio, and we want to strengthen the 40-50 HP range where we will launch some new products in 2021. For the new emission norms, we also have plans to launch some higher HP range products that will give us a huge boost in demand for New Holland.
We are ready to bring in whatever is required from our global portfolio to India provided the market is there, and we can sell competitively.
