Infrastructural developments are always accredited as a ‘Growth Factor’ not just for the economy but for the commercial sectors driving a nation. With India ambitiously pacing ahead with an infra-growth agenda, the opportunities are considered as immense for the construction sector, largely for the equipment and heavy vehicles segments backing it. The year 2019 kicked off on a promising note for the construction equipment and heavy commercial vehicle sectors with the Modi-led Government regaining its administrative control and larger focus on achieving an interface lift with big-ticket projects.
However, with the political showdown of elections, despite the growth factors erected, the industry saw a dip or rather moved on a slower pace as compared to the 2018 growth figures. Confirming this scenario is ICRA’s recent research report. Shedding light upon the same, Pavethra Ponniah, Vice President & Sector Head – Corporate Ratings, ICRA discloses, “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 has led to a contraction in fresh equipment buying since early CY2019.”
However, with the focus still largely on infrastructure as the core growth mantra and the expected big-ticket projects to grab its pace, stakeholders maintain an optimistic outlook for the industry.
As per the ICRA findings, the growth curve experienced a dropdown in the early 2019 owing to the slowdown in road projects and general elections. Industry volumes, till CY2019, despite the increased capital outlay for roads, railways, and metro projects in the recent Union 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.
Further, majority of the CE OEMs in India are joint ventures/subsidiaries of global majors. Import content in Indian CE is relatively high, with OEMs importing critical engine, hydraulic and track components, partly from the parent or the parent’s global supply chain. Volatility in the INR and the long lead time for inventory has added to the cost woes of the industry.
“Roads have been the primary growth engine for construction equipment demand in the past three years since CY2016. Road project awards contracted in FY2019. Despite the increased capital outlay for roads, railways, and metro projects in the recent Union 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 YTD FY2020,” adds Ponniah. Through the report the research group further pointed out about the concerns raised due to increased import content in the Indian construction equipment sector. OEMs have been importing critical engine, hydraulic and track components, partly from the parent or the parent’s global supply chain. The report further points to the volatilities in the monetary funding and long lead time for inventory as the added elements resulting towards the cost woes of the industry.
Commenting on the growth factors for the equipment industry, Jasmeet Singh, AVP, Corporate Communications & Corporate Relations, JCB India says, “With the implementation of large-scale projects, including projects of national importance, the road equipment industry is on a path to gain momentum. Roads and Highways followed by Water Conservation and Irrigation are the leading growth sectors at present. Going forward, projects such as Sagarmala, Bharatmala, Jal Marg Vikas, Smart Cities, and AMRUT housing together with a strong focus on rural development, we are hopeful that this will have a positive impact in imparting stability to the sector in the near future.” He further adds, “As rural further integrates, we are hopeful of seeing more activity in terms of building infrastructure in this sector. The Pradhan Mantri Gram Sadak Yojna has been one such program. Also, with a focus on water, Har Ghar Jal and Conservation projects, lakes and reservoirs are further expected to boost demand. With concerted efforts, the longterm prospects look positive and we are hopeful of seeing a strong growth trajectory in the Construction Equipment industry in the next year.”
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