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The construction equipment (CE) industry has seen a volume drop of about 16 per cent in key product categories during this calendar year due to a slowdown in road projects and a tight financing environment.
The volume drop comes after a strong double-digit growth in CY2018.
During 2018, the CE industry grew by 30 per cent in unit terms, driven by strong growth in all components, particularly backhoes and excavators. This followed over two years of robust performance since 2016.
However, prospects started to dim in early 2019 in the run-up to the general elections. Till August this year, industry volumes have shrunk by 16 per cent in the key product category of backhoe, excavators and wheeled loaders.
The CE industry has been seeing some slowdown on account of financing issues and delayed payments for ongoing infra projects, Bharat Madan, Group Chief Financial Officer, and Corporate Head of Escorts, told during the company’s latest conference call.
In CY 2019, Escorts’ saw its construction equipment volumes fall about six per cent in Q1 and 20 per cent in Q2. The segments such as backhoe loader, pick and carry cranes and compactors witnessed a degrowth of 27 per cent during the second quarter.
“Slow movement in award of road projects during the past several quarters, delays in payment to contractors, continued land acquisition issues and overall tightness in the financing environment have led to a contraction in fresh equipment buying since early 2019,” said Pavethra Ponniah, Vice-President & Sector Head – Corporate Ratings, ICRA.
Action Construction Equipment also was impacted and faced higher inventory levels in Q2 of 2019 as it had expected the infrastructure and industrial markets to rebound post-elections.
Despite the increased capital outlay for roads, railways, and metro projects in the recent Budget, continued slowdown in project awards, payment delays to contractors, change in the awarding model for road projects and the overall uncertainty in the economy has led to a sharp decline in expenditure on roads during this fiscal.
“The outlook for the sector could turn stable if the demand environment improves on a consistent basis, with a revival in public and private sector expenditure on infrastructure projects. Accommodative public policy and an improvement in buyer confidence would be critical for the same,” said Ponniah.
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