ICRA
After a 10-12% contraction in CY2020, dragged down primarily by the 39% decline in H1 CY2020, the mining and construction equipment (MCE) industry is poised to grow by 15-20% in CY2021 (5-10% in FY2022). Continuing the 23% recovery in demand in H2 CY2020, Q1 CY2021 is estimated to have reported a strong equipment demand growth of 45-50%. However, an economy in the grip of a pandemic could throw up sudden negative surprises, as witnessed in April 21, when demand was relatively subdued.

While overall equipment demand will be strong in CY2021, partly due to the low base of CY2020, volatility in demand is likely, with a strong Q1, a relatively subdued Q2 in the grip of the second wave, and the emission-related pre-buy pick-up and a post-buy slump in Q3 and Q4 CY 2021. While the second wave throws up challenges, particularly in the manpower-intensive construction sector, ICRA expects a better-prepared ecosystem, buffered by ample liquidity to limit stoppage of work, provided the lockdowns are limited to a relatively narrow window and are more localised, preventing a massive wave of reverse migration.

Pavethra Ponniah, VP and Co-Group Head, ICRA said, "Support to ICRA's equipment demand estimates originates from - the GoI continuing its 'Build India' momentum to counter the economic slowdown and the ample liquidity in the ecosystem. Tailwinds from any pick up in state capex, compared to the pullback in FY2021, and strong construction activity picking up in other sectors like ports, metros, and airports, could aid demand. On the contrary, demand can be hit by the Covid second wave restricting mobility and equipment utilisation for a prolonged period, which in turn could result in an increase in delinquencies and lender pull-back and a likely equipment price increase of 5-10% for the emission norm change."

Dealer checkpoints predict a more subdued 0-5% volume growth in FY2022 against ICRA's expectations of a 5-10% volume growth. That said, given the current uncertainty in the market, following the huge surge in Covid-19 cases in the recent weeks, ICRA believes that ground touchpoints are heavily clouded by the immediate term. ICRA will continue to monitor the second wave and vaccination drives to recalibrate demand if warranted.

Continuing with the 15-20% growth expected in CY2021, ICRA expects demand growth to sustain in CY2022 and CY2023, before declining in CY2024 pre- and post- the General Elections during April-May 2024. Covid-19 hit demand hard in Q1 and Q2 CY2020 with domestic demand contracting by 25% and 60%+ respectively. Demand started reviving in July 2020, inching up by 5% on July 20, before a strong and unexpected volume uptick led to a 22-24% growth in H2 CY2020. Apart from the base effect, the demand resurgence since July 20 has been two-pronged - strong demand from the rural (housing, irrigation, rural roads) and agricultural segments and secondly, Government infrastructure investment, particularly inroads. The sharp demand revival for most equipment on July 20, particularly excavators and backhoe caught the OEMs off-guard. Overlapping with the upsurge in automotive demand, the common supplier ecosystem was stretched, leading to order backlogs for several months.

The industry-wide credit profile which has held up during CY2020, aided by the soft commodity prices, will witness pressure from hardening input costs in CY2021. Further, cost increases associated with the TREM change, and the OEM's ability to pass it on fully to the end customer in a period of volatile demand, will remain a challenge.
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