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Build India to drive mining, construction equipment demand in 2021, says ICRA

Our Bureau Hyderabad | Updated on May 11, 2021

Strong construction activity in ports, metros, and airports could aid demand though there might be delinquencies due to the pandemic

Following a 10-12 per cent contraction in CY2020, dragged down primarily by the 39 per cent decline in H1 CY2020, the mining and construction equipment (MCE) industry is poised to grow by 15-20 per cent in CY2021 (5-10 per cent in FY2022).

Continuing the 23 per cent recovery in demand in H2 CY2020, Q1 CY2021 is estimated to have reported a strong equipment demand growth of 45-50 per cent. 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.

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Volatility in demand likely

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 post-buy slump in Q3 and Q4 CY 2021. 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.

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Pavethra Ponniah, Vice-President 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.”

Pain points

However, 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 per cent for the emission norm change.

Dealers predict a subdued 0-5 per cent volume growth in FY2022 against ICRA’s expectations of a 5-10 per cent 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 touch points 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 per cent 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.

Published on May 11, 2021

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