Robust long-term outlook but general elections in mid CY2019 to moderate growth and revenues in FY2020; recovery post-elections will be contingent on the stability of the elected government: ICRA

Pro 50 25T

The Indian Mining & Construction Equipment (MCE) industry is likely to see a moderation in demand growth, which is expected to fall to 4-6% in the medium term, more particularly during CY2019. The basic reason are the policy paralysis and diversion of liquidity during Central elections, which generally leads to slow progress on projects. As per ICRA report on the industry, demand for MCE post-elections will be a function of a stable government and continued focus on infrastructure investments. This apart, the likely impact of the emission norm changes in off-road equipment during October 2020 on prices of CE is another headwind for CY2020 that may affect demand growth.

Elaborated Pavethra Ponniah, Vice President and Sector Head, ICRA: "Demand growth was a robust 24-27% during CY2018 (as against ICRA’s July 2018 expectation of ~20% growth), supported by road work throughout the country. Growth stayed strong through the initial 9M of CY2018, barring seasonal lows. However, growth started tapering off in Q4 CY2018 and has been relatively muted in Jan-Feb’19, impacted partly by the NBFC liquidity crisis, and the consequent impact on loan-to-value (LTV) ratio and interest rates during Q4CY2018. Further, the ensuing general elections will have a bearing on the growth and the stability in the MCE industry and the subsequent government thereof will determine growth trends in the medium term."

Great Asian Highway

Within the MCE industry, the construction equipment (CE) segment has been growing at a rapid pace over the past three years (CAGR of 17% CY16-18E), while the mining equipment (ME) growth has been relatively muted, between 5-10%. The outlook for ME from late CY19 onwards is expected to be positive but will be largely contingent on Coal India’s massive equipment ordering plans. Coal India has already floated tenders and is factoring in a 9-12-month period for delivery of these large capacity equipment; demand for mining equipment should increase in CY2020. This demand spike also includes pent-up demand of the past three-four years, when Coal India's ordering was delayed due to some procurement hurdles. Mining equipment manufacturers with which ICRA interacted with have also corroborated this improved outlook for mining equipment with demand coming from coal; and quarrying and aggregate for roads.

As for CE demand, for a large part of the current up-cycle that started in CY2016, road work has largely been a single legged demand driver, followed by railways, which also supported growth briefly during CY2017. Notwithstanding the general slowdown in public/private infrastructure work during the election period, the road sector has an adequate pipeline of projects for development/up-gradation 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 post-elections will be contingent on the stability of the elected government.

Caterpillar 424B2

Although new stringent awarding guidelines for road projects have reduced awards in FY2019, the major contribution to execution in FY2019 came from projects awarded up to H1FY2018 and not those awarded in last 12 months. Given this premise, weak awarding in CY2019 (given the election period) could impact execution, and, consequently, demand for equipment in CY2020.

Supported by public sector spending on infrastructure, construction activities witnessed healthy y-o-y growth during 9M FY2019. Road remained the growth engine for the sector, however, there has been some challenges in land acquisition and arrangement of funds for PPP projects. Overall, the construction sector is expected to continue to witness healthy order inflow and pace of execution, in the backdrop of increased investments in the infrastructure sector. This is expected to boost financial performance in FY2019.

39992 Crane

On the financial front, MCE industry-wide revenue growth has been strong in the last three years (ending FY2018) supported by sharp recovery in demand across most of the product categories. With better utilisation of capacities and improving bargaining power of OEMs aided by favourable demand, the industry profit margins and RoCE have expanded sharply, reaching highs of 14% and 40%, respectively, during FY2018. Higher operating margins coupled with lower interest costs (on the back of sizeable reduction in debt) has resulted in strong net profit margins. Steady increase in earnings has resulted in generation of strong cash surplus, which was used to reduce debt levels sharply. Accordingly, the industry credit metrics has improved in the last three years. The working capital intensity too continues to be comfortable at less than 10%.

Adds, Ponniah, "Following strong growth during FY2016-18, the Indian MCE industry (represented by a sample of nine large players) is expected to continue the growth momentum in FY2019 as well. The estimated growth of ~23% draws support from sustained demand push in key end-user industries like roads, railways, metro etc. However, ICRA expects the revenue growth to moderate sharply in FY2020 with likely contraction in demand, especially from segments like roads. The industry margin, however, is expected to remain range-bound benefiting from the higher capacity utilization, scale economies and relative easing of pricing pressures."

Given the robust cash accrual build-up over the years, dependence on debt (to fund capex or working capital) has been limited in recent years. Going forward, ICRA expects the trend to continue with likely improvement in accruals and cash flow position. Several players have announced capex plans, in line with the expected demand trend. However, with strong accruals, industry credit profile is expected to improve. Moreover, improving accruals together with reducing debt is expected to enhance credit metrics of the industry, expanding interest cover and reducing gearing.
Click Here
To Know More or to Contact the Manufacturer
Please let us know your name.
Invalid Input
Please let us know your Designation.
Please let us know your Contact Number.
Please let us know your email address.
Please brief your query.
Our other Value-Added Services:

To receive updates through e-mail on Products, New Technologies & Equipment, please select the Product Category(s) you are interested in and click 'Submit'. This will help you save time plus you will get the best price quotations from many manufacturers, which you can then evaluate and negotiate.

Invalid Input
Invalid Input
Invalid Input
The Kartarpur Corridor between India and Pakistan connects the historic gurdwaras of Dera Baba Nanak in Gurdaspur District of Punjab (India) with Gurdwara Darbar Sahib, Kartarpur, in the Narowal District of Punjab (Pakistan)

Read more ...

Authors Er. Vivek Abhyankar, Founder of SGAWings Civil Engineering Consultant and Advisor (OPC), Mumbai & Dr. N. Subramanian, an award-winning author, consultant, and researcher, based at Maryland, USA, present a brief review

Read more ...

The Modi government’s ambitious and aggressive ₹6 trillion National Monetisation Plan (NMP), high on intent with enabling framework, holds the promise of success, notwithstanding various challenges on

Read more ...

34-InfraDespite their relatively small markets, Bhutan and Maldives provide Indian construction companies a dynamic space for infra development with an appreciable degree of social and cultural familiarity

Read more ...

Very few places in our world are more educational than museums. Museums are storehouses of knowledge and help us understand our world better. As institutions at the heart of society, museums have the power to define

Read more ...

Investors are looking to hedge their risks by diversifying their portfolios with Alternative Investments such as Commercial Real Estate. An alternative investment is one which is outside the traditional

Read more ...

Notwithstanding some bright spots, the flagship Smart Cities Mission (SCM), which marked its 6th anniversary on June 25, is yet to live up to its tall promises. Their sub-optimal performance, precipitated by

Read more ...

Indian construction companies and equipment manufacturers should explore opportunities outside the country as India has the potential to become a global manufacturing hub. Reports Saeeduddin Faridi

Read more ...

TDR policy faces many constraints and challenges and several reformative steps are needed at the policy level to bring momentum to it. Though the concept of TDR (Transferable Development Rights), largely aimed

Read more ...

With the launch of Digital Roof 4.0 (DR4.0), a new day has dawned in the Indian construction sector. Digital Roof 4.0 is a multi-faceted engineering and management company set up with the avowed intention

Read more ...

Focusing on infrastructure as a key driver of economic growth, the government is embarking on a massive PSEs asset monetisation programme as part of Infrastructure Vision 2025. This ambitious programme is meant

Read more ...

Cities all over the world are rapidly changing and expanding, and proper urban planning is now more important than ever before. Singapore 'urban model' is a classic example of highly targeted urban planning which has transformed Singapore's

Read more ...

In terms of its contribution to the global economy, the construction industry is at the forefront with a staggering annual share of 11- 12 trillion dollars. It is a large employer with more than 300 million people

Read more ...

For years, construction has lagged behind other industries regarding technological advancement, disruption and digital automation. Finally, this is starting to change. The reducing cost of digital enablement

Read more ...

At a time when India is undergoing rapid urbanisation, integrating technologies like AI and IoT will help in faster and better planning and designing of smart, tech-enabled cities. Technology is transforming the real

Read more ...

The rapid pace of technological advancement is changing every single aspect of our lives — and all of the industries and sectors in which we work. Consequently, civil engineering is not an exception here. For instance

Read more ...

Ease of purchase, increasing affordability, growing importance of spacious and safe environs of one’s own home due to increased health consciousness, and the trend of homeownership over renting, have all led to the revival

Read more ...

There are several failures of buildings and bridges and other constructed facilities; it is important to learn from these failures so that such catastrophes do not occur in the future (Feld and Carper

Read more ...

The unique and fast growing real estate marketing concept of ‘Fractional Ownership’ has opened a new, safe, and profitable avenue of investment for retail investors in expensive A-grade office real estate

Read more ...

Infrastructure, together with real estate and housing, which are key to economic development, were severely hit due to the Corona pandemic; however, there have been many bright spots, especially the progressive policy

Read more ...

×
Sign-up for Free Subscription
'India Construction Week'
Weekly e-Newsletter on Construction Industry
Get the latest news, product launches, projects announced / awarded, government policies, investments, and expert views.