Caterpillar Inc. (CAT) is planning to invest $212 million in India to meet the increasing demand for its products due to road construction and overall infrastructure boom in the country.
The plan includes building a new $150 million engine manufacturing facility in India that will produce Perkins branded 4000 Series engines. The site selection for the facility is currently under progress. In addition, Caterpillar has slated $62 million for expansion of its existing off-highway truck manufacturing facility in Chennai.
Last year, Caterpillar had announced expansion plans to the tune of $108 million to double its truck capacity in Chennai. Caterpillar had then stated that it would invest $700 million over the next four years in a bid to start production of mining shovels and expand output of trucks at its Chennai and Illinois plants.
These facilities will cater to customers in India as well as other growth markets. The move adds to a growing list of investments that Caterpillar has made globally as part of its 2015 corporate strategy. In concert with this strategy, Caterpillar is aggressively investing to increase capacity for a wide range of products in key growth markets such as India and support customers in developed economies such as North America, Europe and Japan.
On these lines Caterpillar recently announced plans to build a mining truck facility in Indonesia and expand existing manufacturing facilities in Decatur, Illinois, and East Peoria, Illinois. The company plans to invest nearly $300 million to increase capacity for large mining trucks produced in Decatur and about $340 million for production of large track-type tractors in East Peoria, which are used in mining applications across the globe.
We expect Caterpillar’s growth to be aided by demand for construction and mining equipment despite the lingering doubts overhanging the economy at large. Caterpillar’s strong brand name, pricing power and global dealer network put it in a vantage position to capitalize on the growing need for infrastructure development worldwide. We believe Caterpillar’s expansion plans of opening new facilities and furthering existing operations, particularly in the emerging markets, will boost its long-term potential. The shares of Caterpillar presently retain a Zacks #3 Rank (short-term Hold recommendation). We also reiterate our long-term Neutral rating.
Peoria, Illinois-based Caterpillar Inc. is the manufacturer of construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. The company is one of the few leading U.S. companies in an industry that competes globally from a principally domestic manufacturing base.
Caterpillar operates three divisions – Machines, Engines and Financial Products. Caterpillar competes with the likes of CNH Global NV (CNH), Komatsu Ltd. (KMTUY) and Volvo AB (VOLVY).
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