ICRA: Strong demand growth for MCE industry during CY2018
The Indian mining and construction equipment (MCE) industry is likely to see moderation in demand growth, which is expected to fall to 4-6 per cent in the medium term, particularly during CY2019. According to an ICRA report on the industry, demand for MCE after the elections will be a function of a stable government and continued focus on infrastructure investments. This apart, the impact of emission norm changes in off-road equipment during October 2020 on prices of construction equipment is another headwind for CY2020 that may affect demand growth.
Elaborating further on the trend, Pavethra Ponniah, Vice-President and Sector Head, ICRA, says, “Demand growth was a robust 24-27 per cent during CY2018, supported by roadwork throughout India. Growth stayed strong through the initial nine months of CY2018, barring seasonal lows. However, growth started tapering off in Q4 CY2018 and has been relatively muted in January-February 2019, partly affected by the NBFC liquidity crisis, and the consequent impact on loan-to-value ratio and interest rates during Q4CY2018. Further, the ensuing general elections will have a bearing on growth and the stability of the subsequent government will determine growth trends in the medium term.”
Within the MCE industry, the construction equipment segment has been growing at a rapid pace over the past three years, while mining equipment (ME) growth has been relatively muted, from 5-10 per cent. The outlook for ME from late CY19 onward is expected to be positive but will be largely contingent on Coal India’s massive equipment ordering plans. Coal India has already floated tenders; factoring in a nine to 12-month period for delivery of this large-capacity equipment, demand for mining equipment should increase in CY2020.
As for CE demand, for a large part of the current up-cycle, which started in CY2016, roadwork has largely been a single-legged demand driver, followed by railways, which also supported growth briefly during CY2017. Notwithstanding the general slowdown in public and private infrastructure work during the election period, the roads sector has an adequate pipeline of projects for development and upgradation in national highways and state highways, which can keep execution high during CY2019. Nevertheless, ICRA expects a brief period of decline in execution and demand for new equipment during mid CY2019. Recovery after the elections will be contingent on the stability of the elected government.