Will it be Springtime for the CE Sector?

As we bid adieu to 2020, the current demand for CE products and services is in a sweet spot; but the sector’s firming up will be critical for ushering in sustainable growth. A lot will depend on the marketing activities to take the sector out of its recent gloom, observes S.K. Khanna.

There could be unexpected spin-off benefits for the domestic Construction Equipment (CE) Sector as tension mounts between India and China in the border areas, resulting in increased sales of the products and services for the CE companies. As per reports, there has been more than 50 percent rise in the sales of equipment, and overall, a marked increase in the offtake of equipment during the last 3-4 months following heavy spending by the government on infra projects, which had identified 73 strategic roads totaling 4,000 km and related infra such as tunnels, bridges, and airfields.

These developments are giving a push to the sales and marketing of equipment and services; in fact, the momentum is likely to go beyond the current transitory period as the government focuses on quick implementation of important projects. These projects have the potential of adding 3-4 percent of GDP and providing over 10 million jobs and boost the business potential of various sectors of the economy, besides the CE sector.

The Mood is Optimistic in Important Quarters
CIDC expects the optimism to prevail. The government’s Stimulus Package 3 is expected to stimulate a large demand for cement, steel, and allied products, which will be processed by the CE sector for deployment in ongoing infra projects as well as upcoming ones. It is strongly felt that infra projects could be the antidote to the current economic contraction as they have a multiplier impact across the board.

JCB India’s Deputy Chief Executive, Deepak Shetty, opines that the market trend is very encouraging for equipment companies. Demand has recovered from the prolonged lockdown phase, driven by flagship government schemes and through the government’s heavy spending on construction and activities under PMGSY and MNREGA. During July-August, JCB witnessed a ‘Y’ shaped recovery in the deployment of its products and services, which has given the company renewed confidence in better times ahead.

Indian Construction Equipment Manufacturers Association’s (iCEMA) President & MD Tata Hitachi, Sandeep Singh, agrees that better days lie ahead as the government is serious about completing stalled and ongoing projects without any time lag, for the benefit of the country’s economy. Infra projects will lift the demand and supply of construction equipment and boost marketing activities.

He disclosed that nearly 100 excavators were supplied to BRO by Tata Hitachi, which worked even during the lockdown period to deliver machines to expedite completion of projects.

Government’s Proactive Approach
Infra projects under the National Infrastructure Pipeline (NIP) with massive investment, reforming project planning, execution and implementation under the PPP model, are likely to sustain the current positivity in the CE sector. The country is developing new-gen infra projects like smart cities, smart highways, airports, as the government had announced its ambitious plan of spending over ₹100 lakh crore towards infrastructure development. The government has also identified assets like gas grids, power lines, ports and non-core PSUs to be monetized in order to generate funds. On the other hand, the Centre has cleared ₹6,000-cr for NIIF (National Investment and Infrastructure Fund) to provide long-term capital to the infrastructure sector.

There has been a big jump in the order books of many EPC companies like L&T, Dilip Buildcon, Kalataru Group, JMC Projects, IRB Infra Developers, etc. Driven by higher spending in infrastructure development and an economic rebound, EPC companies are evaluating their immediate requirement of construction equipment and services to execute the major projects like metros, railways, roads, expressways, bridges, etc, that have been assigned to them.

According to Off-highway Research, both the short-term and the long-term prospects of demand and supply of construction equipment and services appear to be good due to the reasons stated. The developments will boost several other sectors of the economy, and eventually boost the commercial market and help create new jobs - both direct and indirect. A FICCI report states that the Indian manufacturing sector is poised to witness a recovery in the next few months with the rise in percentage of respondents reporting higher production.

Economy on the Mend
According to ICRA, the economy may have contracted but improvement has been seen during the last two quarters led by growth in sectors like power, mining, and construction, supported by fiscal and monetary measures.

With Stimulus 3 on the cards for a ₹1.454 crore boost for manufacturing and a further 7 lakh crore (or 3.5 percent of GDP), the economy is on its way to mend. So far, the Centre has provided a stimulus of ₹29.9 lakh crore (since the lockdown in March ’19). The government has announced a fresh set of measures with an estimated outgo of ₹1.2 lakh crore to boost demand, help create jobs, and augment the country‘s infrastructure. These developments would no doubt augur well for various sectors of the economy.

A Resilient CE Sector
It is to the credit of the domestic CE sector that despite a long spell of slowdown in business activities, it continued to launch new products and undertook marketing initiatives to bolster its image both within the country and outside. It, thus, (also) laid stress on its ability to achieve world-class quality benchmarks and ensure timely delivery of its products and services, even on the face of a disrupted supply chain.

No summer or winter lasts forever, and no spring skips its turn. It could be springtime now for the CE sector, but the second way of Covid-19 remains a potential risk. With some luck, the Covid-19 crisis could prove to be a short setback to the emergence of a strong economy, but we have to maintain a balance between optimism and caution, and between exuberance and practicality.