Slow Project Awarding, Tight Financing Remain Key Challenges For MCE Sector In FY25

Rating agency Icra expects the sales volume of the Indian mining and construction equipment (MCE) industry to fall by 5 to 7 per cent in FY2025 on a YoY basis, against the earlier estimates of a 12 to 15 per cent decline. This follows better-than-expected domestic sales in H1 FY2025 (up 2 per cent on a YoY basis), despite a slowdown in infrastructure activities during the General Elections in the first quarter and monsoons in the second quarter. 

The likely lower decline of MCE sales volume in the current fiscal also reflects customers’ optimism about sustained policy focus on infrastructure development. However, slow project awarding and tightening in the financing environment remain concerns, which may constrain demand in the second half of the current fiscal.

Ritu Goswami, Sector Head, Corporate Ratings, Icra said, “The project awarding activity in the road segment (the major driver for domestic MCE sales) has remained weak during the last 15-18 months. While a surge in the Government capex is expected in H2 (given the pending budgetary outlay), ICRA estimates that the annual awarding by the Ministry of Road Transport and Highways (MoRTH) in FY2025 to be similar to the level of FY2024 and significantly lower than FY2021-FY2023 levels."

Goswami added that given the lead time between project awarding and commencement of work, equipment purchasing by road developers may be deferred till next year. Demand from other user industries will only partly offset this gap. Additionally, a tight financing scenario by way of a lower loan-to-value ratio, greater scrutiny of loan applications or higher loan rejections may result in the deferral of new equipment purchases by first-time (retail) buyers and constrain offtake for the full year.

Road construction accounts for 35 to 45 per cent of MCE sales in India, followed by mining (20 to 30 per cent), real estate (10 to 20 per cent) and other sectors (railways, water supply, power etc.). In H1 FY2025, the growth in domestic sales was driven by the earthmoving and material processing equipment segments, which saw a 5 per cent and 1 per cent YoY growth, respectively. Road construction (-9 per cent), material handling (-7 per cent) and concreting equipment (-4 per cent) segments reported a decline in volumes in H1 FY2025 on a YoY basis.

The performance trend was mixed across the major sectors in H1 FY2025. In the road construction segment, data from MoRTH reported a decline in execution by 7 per cent and awarded by 34 per cent in 5M FY2025 on a YoY basis. In contrast, despite the impact of monsoon on the mining activities in Q2, coal production (up 5.8 per cent on a YoY basis in H1 FY2025, as per provisional data from the Ministry of Coal) and iron ore production (up 8.9 per cent on a YoY basis in 4M FY2025, as per data from the Ministry of Mines) reported growth, indicating healthy demand momentum in the user industries like energy, steel and cement. In addition, the ongoing real estate upcycle supported the overall MCE sales.

Goswami added, “With Construction Equipment Vehicle (CEV) - V emission norms getting implemented from January 2025, which may entail price hikes, some pre-buying is expected towardsthe end of FY2025 and Q1 FY2026. Strong focus towards improving transportation infrastructure (roads, railways and airports), with healthy budgetary outlays for the Pradhan Mantri Gram Sadak Yojana, Pradhan Mantri Awas Yojana and Jal Jeevan Mission, have been among the key growth drivers for new equipment demand in the recent years. Sustenance of these initiatives, coupled with continued focus on energy security (as reflected in increased coal mining targets/reduced imports) and rising mechanisation across infrastructure projects reflect a favourable demand outlook for the MCE industry over the medium term.”