ICRA - Strong demand growth for Mining & Construction Equipment Industry

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.

NBM&CW May 2019

Click Here
To Know More / Contact The Manufacturer
Please provide your details we will contact you as soon as possible
Please let us know your name.
Invalid Input
Please let us know your Designation.
Invalid Input
Please let us know your City.
Please let us know your State.
Please let us know your Country.
Please let us know your Contact Number.
Please let us know your email address.
Please brief your query.

Infra Development: The Way Forward

Although the Indian economy has been facing macro-economic ups and down due to global economic gloom, it has managed to remain stable, recording moderate growth rate consistently. Braving all the problems beyond its control, it has improved Read More ...

“Nal Se Jal” - SPML Infra Playing Key Role in Developing Water Infrastructure in India

SPML Infra Limited, India’s leading water management company will play a key role in the development of sustainable water infrastructure to realize the vision of “Nal Se Jal”. This ambitious scheme announced by the Finance Minister during Read More ...

Indian Aviation on a Growth Path

The Aviation Industry in India has emerged as one of the fastest growing industries in the country, especially so during the last three years. Introduction of low-cost carriers, FDI in domestic airlines, advanced information technologies Read More ...

Redefining Urbanity with international transport system

Creative Group presents a new vision for Chandni Chowk (a very congested area in Old Delhi) with re-planned interconnectivity, intermodality, and green spaces, that release the current stress above the ground and create opportunities to restore Read More ...

Rapid Transit System in India Making inroads

To quote Mark Walport, “Industrialisation, Mass Transit, and the Internet are technological revolutions that have reshaped lives, nations, and the planet.” The Indian economy is poised to grow at over 7% in the coming years, placing it Read More ...

Attracting Private Investments to Boost Highway Growth in India

Ever since India set out on a path of economic liberalization in 1991, the policymakers for almost three decades remained focused on developing infrastructure to commensurate with the economic growth of the nation. But the task was humongous Read More ...

Transport Infrastructure in Focus

Transport Infrastructure to continue as a key focus area for new Government with massive capital outlay of up to ₹30 trillion expected over next five years. Construction companies are likely to be the major beneficiaries and will witness Read More ...

Real Estate Market Outlook 2019

India continues to retain its position as the world's fastest growing major economy on the back of improved investor confidence and better policy reforms. The IMF's database also suggested that India's contribution to world growth Read More ...

Infra Construction - Positives Outweigh Negatives

For a large part of the current up-cycle which started in CY2016, road work has largely been the biggest demand driver, followed by railways/metro.Notwithstanding the general slowdown in public/private infrastructure work Read More ...


Israel's Ilan and Asaf Ramon International Airport will service the Red Sea resort city of Eilat and surrounding region. Commissioned by the Israel Airport Authority (IAA), the project was handled from A to Z by design Read More ...

Real Estate

Staving off the triple impact of Real Estate Regulation and Development Act (RERA), Goods and Services Tax (GST) and Demonetization (which had brought the sector to a grinding halt), India's Real Estate is back on Read More ...

Construction Dust Causes, Effects and Remedies

Construction dust can seriously damage the health of construction workers and if exposed for longer times can eventually even kill them. About 22,000 to 52,000 persons per year are dying due to inhaling polluted air in USA alone Read More ...

3-D Printing in Construction: A Review

Three dimensional printing has made its advent in construction in the recent past. With recent advancements in technologies, materials and further inclusion of building information modelling into the construction process, 3D printing is Read More ...

Reforms leading to higher expectations

The RRE has witnessed a prolonged downcycle owing to high inventory, muted demand, weak affordability, and declining investor interest. However structural changes over the last two years in the form of Real Estate Read More ...

Real Estate Industry in 2019

Post the revival of the Indian real estate sector through a series of initiatives by the government, the confidence of the homebuyers has increased with a clear understanding of the market. The developers have also witnessed Read More ...

Technology Transforming Indian Real Estate

One of the most potent and radical ground-breaking technologies set to transform property markets in current times is artificial intelligence (AI), which along with machine learning are reforming technology all Read More ...

New Building Material & Construction World

New Building Material & Construction World
MGS Architecture

Modern Green Structures & Architecture

Modern Green Structures & Architecture

Lifting & Specialized Transport

Lifting & Specialized Transport

Indian Infrastructure & Tenders Week

Indian Infrastructure & Tenders Week