The demand for Mining and Construction Equipment tapered from Q1 FY2022, post a record high volume in Q4 FY2021, following the second Covid wave along with the increase in equipment prices and muted rentals. After witnessing Y-o-Y growth in volumes during H1 FY2022 because of a low base, construction equipment volumes witnessed a Y-o-Y decline during Q3 FY2022 which also coincided with 2.8% contraction in construction GVA during the last quarter. ICRA has conducted a comprehensive survey of CE dealerships in March 2022, among 18 MCE dealerships encompassing 13 OEMs, eight equipment segments spread across 12 states (Madhya Pradesh, Maharashtra, Orrisa, Kerala, Karnataka, Uttar Pradesh, Delhi-NCR, Haryana, Gujarat, Telangana, Jammu and Rajasthan). The findings indicate majority (78%) of the respondents expect a year-on-year (Y-o-Y) volume decline of ~10% during Q4 FY2022, however, they expect volume growth of around 7% in FY2023.
Mayank Agrawal, Sector Head and Assistant VP, Corporate Sector Ratings ICRA Ltd, informed, “Volumes in FY2022, were constrained mainly because of increasing equipment prices both on account of rise in input costs and changes in emission norms (from CEV-III to CEV-IV), muted rentals and extended monsoon-related impediments. The findings of ICRA’s latest survey clearly reflects positive sentiment over the next six months with none of the respondents expecting a decline in volumes. Though, the feedback has been widely disparate across states in terms of growth expectations, majority of the dealers estimate a sub-10% growth, highlighting cautious mood and persistence of uncertainties.”
The survey further, indicates a 10%-20% increase in prices of equipment, mainly due to increasing input cost along with change in emission norms. The equipment utilisation levels moderated primarily due to extended monsoon and its impact on the infrastructure activities. A lower number of respondents, only 64% highlighted a utilization level of over 70 % as compared to 77% respondents during Nov-2020 survey. The rentals continue to remain under pressure. A majority of respondents indicated that inventory holding has come down to up to 30 days, compared to up to 60 days of inventory, pre-Covid. Also, most dealers reported a tighter lending environment, with loan to value (LTV’s) reduced by 500 bps compared to pre-Covid era for the first-time buyers (FTB) segment.
Agrawal added, “ICRA’s outlook on the mining and construction industry continues to remain stable, with expectations of a pick-up in demand following continued thrust on infrastructure by the GoI in the Union Budget 2022-23. Nevertheless, tightening of LTVs by financiers, muted rentals and continued increase in equipment prices poses downside risk to demand estimates.”