Higher infra spends boosts construction equipment volumes

Higher infra spends boosts construction equipment volumes

The Investment Information and Credit Rating Agency (ICRA) told the media that heightened focus on infrastructure spends, particularly in the road infrastructure segment, has led to a sharp spike in construction equipment (CE) volumes since July 2020.

Accordingly, the agency revised its outlook on the construction equipment sector from negative to stable, following a strong scale up in volumes.

Earlier, ICRA had predicted that the domestic CE industry might see moderate volume growth, despite zero sales volume in the April-June period on account of the nationwide lockdown, as dealers had reported a rebound in demand in the second quarter of the financial year 2020-21.

ICRA's forecast, which is based on a survey of 13 CE dealers from across the country, had also stated that most dealers expect a 5-10% hike in prices next fiscal on account of new emission norms, which are to come into effect from April 2021 for the CE industry.

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As per the agency, factors such as a sharp increase in the awarding and execution pace of road construction, increased focus on rural infrastructure, strong rural volume off-take for equipment on the back of second consecutive good monsoon, improving demand from railway and mining segments, and the regular payment flow from the government to contractors has supported healthy revival in industry volumes over the last few months.

Besides, demand has also been backed by steady inflows from the central government on infrastructure spend, particularly on roads, even though state infrastructure expenditure has been severely curtailed and diverted to the pandemic management.

The agency pointed out that continued limited fiscal bandwidth with state governments to invest in infrastructure and the price hikes following the upcoming emission norm change in April 2022 as two critical demand headwinds in the coming quarters.

ICRA told the media that state governments are key contributors to the infrastructure activity in the country. It added that modest growth in SGST collections, delays in receipt of GST compensation, and the reduction in the central tax devolution to the states in FY2020 below the level budgeted by the government have complicated the liquidity management of the state governments.

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Also read: ICRA predicts construction equipment volume growth in CY2021

Also read: CE market to pick up in long term

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