Companies

With easing of lockdown, construction gear makers expect gradual rebound in the industry

G Balachandar Chennai | Updated on June 23, 2020 Published on June 23, 2020

The growth in the construction equipment sector is directly dependent on infrastructure development   -  Satish H.

The Indian construction equipment sector is already seeing green shoots of revival as it is witnessing positive movement in enquiries. It expects the recovery to be gradual amid easing of lockdown and opening up of the economy in many parts of the country.

The growth in the construction equipment sector is directly dependent on infrastructure development. Due to Covid-lockdown and restrictions, companies reported close to zero revenues during April and May as most projects across the country had come to a standstill. The industry was down by almost 80 per cent, making it an extremely challenging period.

However, with the easing of norms, and the efforts of the government, construction equipment makers see some revival in demand.

“The green shoots are a combination of pent-up demand getting released and also the slow revival of sentiment as we learn to live with the virus,” said Subir Kumar Chowdhury, Managing Director and CEO of JCB India.

Key sectors

JCB India sees two sectors needing to emerge stronger in order to provide some demand in the near term — infrastructure development in rural India and the creation of a strong healthcare system.

“The movement of migrant workers is giving us an opportunity to have a better rural-urban re-balance. Rural India has the potential to become a key growth enabler in the days to come. Schools, colleges, hospitals, dispensaries, all need to be scaled up. The action will shift to villages and smaller towns — and segments like municipal waste, village roads, rural infra, village infra are set to grow,” he added.

“Barring three metro regions — NCR, Mumbai and Chennai — other places are slowly getting back to normal. We could see revival in terms of enquiries and customers calling for discussions to finalise orders,” said VG Sakthi Kumar, Managing Director, Schwing Stetter India.

BSE-listed Action Construction Equipment Ltd is expecting a slow rebound in the industry. This month, the industry has experienced a very thin line of orders, clocking only 30-35 per cent of the last fiscal.

“I believe that after the nationwide lockdown, the coming monsoon during July-September will be the next big challenge for the CE industry as it disrupts construction equipment sales. We can expect a speedy revival post monsoon only,” said Sorab Agarwal, Executive Director, Action Construction Equipment Ltd.

Meanwhile, rating agency ICRA does not expect an early recovery in the construction equipment industry. The rate of awards is far slower than the execution, leading to a moderation in the pipeline of orders. In addition, problems like land acquisition delays, cost escalation and weak contractor liquidity will continue to affect demand.

“While lockdown has crippled several industries, factors like weakened State government finances, diversion of government support to healthcare at the cost of all other capital spends; structural changes incorporating social distancing in several industries like construction; the movement of labour; and the cost of restarting the economy — all these make CE industry forecast rather uncertain,” said Pavethra Ponniah, Vice-President & Sector Head - Corporate Ratings, ICRA.

Concern over red zones

Amid revival signals, companies raise concern over large cities being in containment zones as it would delay the recovery. “The industry will be extremely challenged if major towns and cities were to go into a lockdown once again,” said Chowdhury.

New Delhi, Mumbai and Chennai are among the key hubs for the construction equipment market and all the three major cities are still in the red zone.

“This is definitely impacting the revival of the CE sector as uptake from these three major centres is still minuscule,” said Agarwal.

Published on June 23, 2020
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