“Tough times never last, tough people do.”
The team at Escorts Construction Equipment (ECE) is an embodiment of this adage. Having witnessed tough times in the recent past, the team has taken it upon itself to transform the way it works and serves its customers. As stories of ‘comeback’ and ‘growth in a de-growing market’ surface, it is hard to miss the energy at Escorts’ construction division.
Industry at a Glance
With the slump in execution of infrastructure projects across the country impacting the construction industry, ECE was in troubled waters in the last few years. The industry volumes dropped by almost 30% in the last three years, with all product segments registering a decline. The material handling and road construction segments witnessed a decline by over 16% on a compounded basis in the same period.
December 2014 onwards, the industry has seen some positive movement, which is expected to get better in the second half of this year. In the coming few months, the government’s ambitious plans for ‘smart cities’ will not only be a harbinger for the nation’s growth, but will also be a big boost for the entire construction sector.
The good news is, according to projections, the construction equipment industry is expected to grow at a compounded rate of 20% till FY20. If all goes well, we are looking at an industry size in the vicinity of Rs. 34,000 crores, moving up from the current Rs. 13,500 crores. These numbers will be majorly contributed by the earthmoving segment, followed by road construction and material handling.
Escorts Construction Equipment takes pride in owning the most comprehensive product basket in the Indian construction equipment industry. The company offers a wide range of products in the segments of material handling, earthmoving, road construction, and utility equipment.
For the last several years, Escorts has been the market leaders in the material handling segment, owning more than 50% of the market. Despite being a late entrant into the earthmoving segment, our products have been received with an encouraging response. We not only manufacture products for road construction, but also sell traded products from some of the best global makers.
The New Energy is Palpable
Having been impacted by the severe slowdown in the industry, Escorts Construction Equipment utilized this period to enhance operational excellence internally. With ‘products’ being the cornerstone of success during times of growth, the focus now shifted to ‘people’ and ‘processes’. The entire senior management team of ECE came together to chalk out exhaustive plans of how to mitigate the market situation.
“People” have perhaps played the biggest role in executing this turnaround, demonstrating terrific zest to try out the uncharted, and an unrelenting commitment towards organizational goals. Whether it was changes in the organizational structure, visible transformation on the shop floor, or setting targets for each month, all initiatives and ideas were ‘democratic’ in the truest sense of the word – of the people, by the people and for the people. As a result, the division witnessed a near-perfect alignment to the vision of a turnaround. With the help of war room discussions, participation in town halls, quality workshops, and suggestion schemes, the entire team made tremendous efforts to understand ‘where we are’ and accordingly fixed achievable goals for the short and long term. The shop floor too is buzzing with this new-found enthusiasm, boosted by a series of motivational communication and safety-focused initiatives for the workmen. With every small success, the air of positivity at ECE is going stronger and more palpable.
The business also collaborated with a global consultant to optimize material costs by streamlining processes and renegotiating with suppliers. This exercise helped us reduce material costs substantially, with a lot more to be executed in the next two years.
ECE evolved its customer profile from corporate to retail (40-60%), strengthening the division’s pricing power. It enhanced its pricing and upgraded the products, which has led to increase in realizations by 11.4% during the last few quarters. Not just that, we have managed to securitize cash flows through lower credit exposure through secured payment/credit. The team has been working on improving sources of retail finance for our customers, collaborating with several new partners in the last few quarters.
The most competitive product segment in the construction equipment industry – the backhoe – has been facing a slump since the peak of 2012. The present financial year has seen the segment de-grow by 15% over last year. In such an environment, the Digmax II – our advanced backhoe loader – has been one of the most prized products in the ECE portfolio. Backed by a superior product and a renewed retail push, the marquee brand has consistently increased its market share. In fact, ECE is the only Indian manufacturer to have broken the glass ceiling and is now giving a serious fight to the MNC OEMs that have dominated the backhoe turf since the last couple of decades.
In the category of Pick-n-Carry Cranes, we continue to hold an undisputed 51% market share. And, with the new edition of safe cranes – the TRX Series – increasingly gaining acceptance, this number should only look up.
The Way Forward
The division is today focusing on four key areas – earthmoving, material handling, product support, and parts. Increasing market share in backhoe loader segment will be a priority for the next few years. Nonetheless, the team will also look at retaining the leadership position in material handling by introducing new generation of the in-demand safe cranes.
In Product Support, the focus will be on encouraging dealer dialogue through various interactive programs and schemes. Improving turnaround time for support and ensuring availability of spare parts will be the other areas that will help us boost customer satisfaction in our products and service.
Going forward, Escorts Construction Equipment is looking at being a self-sufficient division, with an improved contribution to the company’s topline. Cost reduction, manpower optimization and streamlining of channel finance will be key areas that will contribute to the long term goal of constantly improving bottom line.