Coronavirus Lockdown: Construction Equipment sales set to drop 50% in H1, FY21

The construction equipment (CE) industry is likely to witness an estimated 50% drop in sales during the first half of the current fiscal owing to lockdown forcing the suspension of infrastructure projects and slow pace of mining activities.

The CE industry witnessed 80-90% decline in sales during April and May. While the first quarter is a total washout for the industry due to lockdown, it is expected to see very thin order booking during the second quarter of the year as construction activity slows down due to monsoon, a top official of a large CE maker said.

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"As of now, the challenge is lockdown forcing closure of several infrastructure projects. Another big challenge is monsoon between July and September, which normally halts sales of construction equipment. We expect, the first half of the fiscal will see a drop of minimum 50% in CE sales," Sandeep Singh, Managing Director, Tata Hitachi and CII Karnataka President told DH.

He said, on an all India basis, the sales of loaders, excavators, compactors, and backhoe loaders, among others declined 25% to touch 95,000 units in 2019-20 compared to the previous year. Last year, the industry witnessed drop in sales on account of IL&FS fiasco, which led to liquidity crunch. During the first half of the fiscal last year, the sales were in the range of 40,000 units across all products and brands put together. This year, it is expected that the first half could see about 50% drop in sales, he said.

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During 2020-21, the construction equipment sales are likely to remain more or less same as last year if things improve in the second half of the year. "It is very difficult to comment on the sales during the second half of the year. It all depends on how well the government's stimulus package will work. The government is trying their best to kickstart the economy. There are several issues like migrant workers returning home, rainy season and availability of funds to buy the equipment," Singh said.

Any possibility of sales is only after September. Some states have less monsoon, so there could be projects happening there. It all depends on how well states recover from the Covid-19 and restart large infrastructure projects, he said.

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“While construction activity on projects under execution was on, new project awarding activity was muted in the 12 months pre-COVID-19 also. In particular, weak road project awards in the past few quarters severely reduced equipment demand prospects, as the single biggest driver for CE demand in the past three years has been the roads sector,” Pavethra Ponniah, Vice President and Sector Head, ICRA said.

The extent of volume de-growth during FY2021 remains uncertain given current market conditions. The sector is expected to witness 15-25% decline in volumes during the current fiscal, ICRA said in a note.