Volume holds back Volvo  ( June '20,2006, Daily News & Analysis)

Low volumes are discouraging Volvo, one of the top three players in the construction equipment (CE) segment, to set up a manufacturing base in the country, in spite of the segment registering a 30% annual growth, Mrityunjaya Singh, head of Volvo India’s CE business, said on Monday. Volvo India, though best known for buses and commercial vehicles, earns 45% of its estimated Rs 1,000 crore revenue from CE. In contrast, the division contributes just 13% to the group’s global revenues.

Volvo India is fully owned by Swedish auto giant AB Volvo. Of its six divisions - trucks, buses, CE, penta (ship engines), aero (aviation components), and financial services, only the first four are present in India.

“The construction equipment market in India is about 6,000 units annually, against 1,80,000 in China and 50,000 in Korea. So the volumes are still not large enough for us to set up a plant here, although we are constantly studying the market and evaluating possibilities,” Singh said.

Some of the other players in the CE segment are Caterpillar, Deere, L&T Komatsu, Hitachi, JCB Equipment, Ace, and a few Chinese and Korean companies.

India is the third-largest CE market for Volvo in Asia, but it manufactures its buses and trucks in the country. While it has set up an annual 1,200- unit bus and truck manufacturing facility in India, the CEs are fully imported.

The equipment include excavators, wheel loaders, motor graders and articulate haulers for road construction, mining, urban infrastructure development, irrigation, pipe laying etc.

“70% of the CE segments are hydraulic excavators, selling about 4,000 units annually, and we are number three in that segment. The pay loaders sell about 1,200 units annually, and motor graders sell about 250 units. The high-value articulate haulers - each machine can cost up to Rs 2.5 crore - is very small, about 5-10 annually,” Singh says.

Volvo has not introduced its backhoe -a type of excavator- loader in India, in spite of the market being worth 8,000 units annually. “This is because the market is quite fragmented with over half a dozen players and we have realised that we can’t be competitive unless we manufacture here,” he says.

Low volumes are also coming in the way of the company exploring local component sourcing for the division globally. In contrast, the truck and bus arm of Volvo India plans to export components worth 70 million euros this year, up from 50 million euros it did last year.