Volvo CE diversifying to beat slowdown

It was a season of discontent for players in the construction equipment (CE) space. The $3 billion industry, dominated by about a dozen players such as JCB, L&T and Volvo India CE, put up a dismal show last fiscal after growing at a scorching pace.

In a tight market, Volvo is looking to implement a lesson or two it learned in the midst of the recent economic downturn. It plans to reduce dependence on the mining and road construction machinery business by adding new products and services to its basket of offerings.

In a chat with DNA, Mrityunjaya Singh, the managing director of Volvo India Pvt Ltd, talks about the construction equipment industry and the company’s prospects this fiscal.

There have been talks about improved business sentiments with the stock indices and gross domestic product (GDP) numbers showing resilience. Have these boosted the construction equipment industry?
I believe that the bottom has been hit. The slowdown was a result of a correction in exuberant growth rather than just a pure economic down cycle. There are signs of revival. But I think it will be slow growth as real estate and construction activity cannot speed up overnight.

How are things from Volvo’s perspective?
We are back to normal production after having had to scale down operations late last year. We were forced to even shut down one of our plants briefly to manage inventory levels. The downturn has taught us a lot and we are looking to implement some new initiatives which, we believe, will help us grow despite challenging conditions.

Can you elaborate on these new initiatives?
Currently, a majority of our income comes from mining and road construction. We offer an array of products such as hydraulic excavators, wheel loaders and articulated haulers. We will progressively introduce new products and foray into newer verticals. For instance, we recently launched pipe-laying equipment in India. Besides, we will add equipment catering to solid waste management, port material handling and dimension stone market this year. We plan to increase the share of replacement, rental and used machinery sales to our total revenues.

How strategic is the Indian centre in Volvo’s global scheme of things?
India contributes significantly in high-end research & development efforts for world markets. The work done here involves CAD designing, failure analysis, component testing and there have been several patents filed from India as well. Keeping this in mind, we will expand our R&D team to 1,300 people by mid-2010 from 500 now.
Also, we plan to ramp up exports of equipment from beyond just Southeast Asia to even western markets. Today, exports, which primarily constitute components, contribute just a small portion to our revenues. The plan is to increase this pie due to the cost advantage and technical expertise the country offers.

What are the challenges and opportunities for this industry going forward?
The major challenge is bank financing woes that need to be addressed to increase equipment sales. Cheap Chinese imports are also a point of concern as they eat into our pie. The biggest opportunity I see is in the government’s pledge to hasten infrastructure development, especially road construction.