The sector’s revenue growth is projected to slow to 4-5% after hitting 27% last financial year.
15 Oct 2024 | 12318 Views | By Yukta Mudgal
India’s construction equipment sector is expected to grow by 4-6% in the current financial year to around Rs 83,000 crore, according to a CRISIL Ratings analysis.
This is much slower than the 27% growth seen in FY24, when sales volume peaked at around 1.35 lakh units, buoyed by strong ...
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India’s construction equipment sector is expected to grow by 4-6% in the current financial year to around Rs 83,000 crore, according to a CRISIL Ratings analysis.
This is much slower than the 27% growth seen in FY24, when sales volume peaked at around 1.35 lakh units, buoyed by strong demand from roads, railways and mining segments.
The slowdown is seen as due to lower volumes, in turn caused by a decline in road construction activity.
Construction equipment comprises earthmoving equipment, material handling equipment, concrete equipment, and road construction and material processing equipment. Earthmoving equipment contributes 70% of the sector’s volume, and around 55-60% of it is used for road construction.
The CRISIL analysis is based on 17 construction equipment companies, representing over 75% of the industry volume.
"Infrastructure activities slowed down in the first quarter of this fiscal due to labour disruptions and delays in awarding of projects amid the general elections, " Anuj Sethi, senior director at CRISIL Ratings, said.
“The awarding of road projects is expected to drop 25% this fiscal to 8,000 km. Sluggish demand from the road segment, along with a 15-20% increase in product prices, will affect sales of earthmoving and road construction equipment, resulting in flat volume in fiscal 2025,” Sethi noted.
However, revenue is projected to grow during the financial year despite lower sales. This reflects a rise in product prices due to the implementation of Stage-V emission norms for construction equipment vehicles during the last quarter of the current financial year. New emissions norms, noise limits and safety standards for construction equipment vehicles are likely to come into effect from January 1, 2025.
Earlier this year, credit rating agency ICRA had projected a 12-15% year-on-year decline in the domestic sales volumes of mining and construction equipment for 2024-25. Though the long-term prospects of the industry remain promising due to the government’s continued focus on infrastructure development, its near-term demand environment remains challenging.
The moderation in revenue growth is unlikely to have an impact on the construction equipment makers’ profitability. CRISIL sees their operating margins remaining stable in the range of 10-10.5% on the back of benign input prices.
"Capex will likely be limited to last fiscal's level, and will be mainly towards compliance with CEV Stage-V norms and debottlenecking. This, along with steady cash generation due to stable operating profitability, will buttress the impact of higher working capital debt, keeping credit profiles stable,” said Naren Kartic K, associate director at CRISIL Ratings.