After witnessing a 20 per cent year-on-year (YoY) expansion in the first quarter of the financial year 2024, the Indian mining and construction equipment (MCE) industry has shown a modest YoY growth of five per cent in the Q1FY25, according to the data from Indian Construction Equipment Manufacturers Association (ICEMA).
As per Icra, the construction sector gross value added (GVA) might have eased to 4 to 4.5 per cent in the Q1FY25 as compared with 8.6 per cent during the same period in the previous fiscal. The slowdown has been attributed to the monsoon-related disruptions in construction activities along with the slowdown in the new project announcements due to the model code of conduct during the general elections.
Domestic sales have reported a five per cent YoY growth in the first quarter of the current fiscal, backed by a five per cent growth in earthmoving and an eight per cent growth in concreting segment.
Road construction has a major share (35 to 40 per cent) in the MCE sales in the country. The official data indicated that there has been a 14 per cent YoY decline in road execution in the Q1FY25, as per the report. Moreover, the awarding activity pace in the road segment has stagnated over the last 15 months, mainly due to a lack of timely cabinet approval for the costs that pertain to the Bharatmala Pariyojana-I plans.
“While Icra expects the construction sector GVA to expand by 7 to 7.5 per cent in the current fiscal. An adequate order book of construction entities and their thrust on execution will support equipment utilisation levels,” said Ritu Goswami, Sector Head, Corporate Ratings, Icra.
A moderate YoY contraction of 5 to 7 per cent in the volumes in FY25 has also been estimated by Icra.
Goswami added, “With renewed confidence regarding policy stability towards infrastructure-fuelled economic development, the new project award activities are expected to ramp up faster than previously anticipated in H2 FY25.”
As far as the cost front is concerned, there has been an upward trend in steel prices since April 2024. Along with this, due to the disruptions in the Red Sea region, the container freight rates have nearly tripled in the first quarter of FY25. This could lead to a further rise in the commodity and input prices in the domestic MCE sector, resulting in reduced margins.
However, the credit profile of the original equipment manufacturer (OEM) is expected to remain stable during the year, as per Icra.
