JOIN USSlowdown hits construction equipment sector hard
After witnessing growth in the last four consecutive years, the Indian construction equipment industry is set to record a 20% decline in sales during the fiscal ending March 2020. Policy paralysis, land acquisition hurdles and delay in awarding national highway contracts by NHAI are major contributors to the sales decline.
In addition to this, the slowdown in economic growth and liquidity crunch faced after the NBFC crisis have largely affected the growth of the industry.
“The industry has seen 18-20% growth over the last four years. However, during the first half of this fiscal, we have seen 25% decline in sales. We expect things to improve in the remaining four months of the year and the net decline will not be more than 20%,” Sandeep Singh, President, Indian Construction Equipment Manufacturers’ Association (iCEMA) said.
The major demand driver going ahead will be a revival of roads sector, irrigation, real estate, railways, ports, and mining, he added.
With this, the construction equipment industry will miss its sales revenue projection of $5 billion in 2019-20 and the overall revenues will drop to around $3.3 billion, Singh said.
According to Singh, who is also the managing director of Tata Hitachi Construction Machinery Company Private Limited, the construction equipment makers have experienced a small upswing in October.
“We believe the support extended by the government in the real estate sector and release of Rs 54,000 crore to the construction sector will bring some relief to the sector,” he said.
Liquidity crunch
As a result of the NBFC crisis since September last year, the construction equipment industry hugely suffered as the customers did not get finance easily. About 50% of the industry’s sales were impacted due to the NBFC crisis.
“However, we have hit the bottom and things will only improve from here on. The complete recovery is possible only towards the end of next financial year,” Singh added.
Many companies have cut down their production in the current fiscal to adjust to the lack of demand for machines. Tata Hitachi took production holiday for six days every month in the last four months. It also held back on its expansion and closed a factory in Jamshedpur and moved the capacity to two of its other plants in Kharagpur in West Bengal and Dharwad in Karnataka.
The National Highway Authority of India (NHAI) is expected to award contracts for 5,000 km of roads this year as against its annual target of 6,000 km. In 2019-20, the total expenditure of the Ministry of Road Transport and Highways (MORTH) is estimated at Rs 83,016 crore, which is 6% higher than the revised estimates for 2018-19.
The construction equipment makers expect better days during the January-March quarter of 2020 following some measures initiated by the government. “We are getting some inquiries from the customers, which we expect to convert into orders early next year,” Singh added.
The industry is awaiting award of contracts worth Rs 5 lakh crore in the road sector. The industry is pleased that some state governments are actively considering new projects. In Karnataka, expansion of the international airport, peripheral ring road, Bengaluru-Mysuru road expansion and aerospace city and revival of pending projects at Amaravati in Andhra Pradesh are set to give some relief to the industry, he said.
Construction equipment makers are banking on immediate opportunities such as skill development initiatives of the government, spares market valued at $1 billion, largely catered by unorganised sector, used equipment sales, which hardly account for 10% of the total industry size and focus on rural roads, which is a $2.7 billion opportunity by 2020.
The industry is also looking forward to a positive response during the upcoming biennial industry exhibition, the Excon 2019, which will be held between December 10 and 14 at the Bangalore International Exhibition Centre.
The 10th edition of the event is expected to see the participation of 1,250 Indian and international exhibitors.