The pace of growth in India’s mining and construction equipment (MCE) industry, buoyed by robust momentum in the last two years, is expected to witness a downturn in the current fiscal year. Rating agency ICRA, on a somber note, forecasts a contraction in the volumes of domestic MCE as a consequence of dwindling new project orders, influenced in part by the political landscape due to the Lok Sabha elections, and disruptions caused by the seasonal monsoon rains.
According to ICRA, the volume decline anticipated for financial year 2025 is set to register between 12-15 per cent year-on-year, which translates into an estimate of 1.14-1.18 lakh units. This projection follows an exceptional growth period for the industry, with increases of 26 per cent in FY’23 and 24 per cent in FY’24.
The reversal from such impressive growth is primarily attributed to a deceleration of new project awards in the latter part of FY’24 and the beginning of FY’25. The dip in activity is expected to be a direct result of the Model Code of Conduct enacted during the Parliamentary Elections in April and May of 2024, which remains effective until the disclosure of election results on June 4, 2024. This code tends to slow down government project awards due to restrictions on administrative decisions and the announcement of new projects that could influence voter decisions.
Financial ramifications for companies within the MCE sector are inevitable as they brace for the anticipated slowdown. Revenue for ICRA’s sampled assortment of companies is likely to shrink by 9-12 per cent, while operating margins may narrow by 100-150 basis points in FY2025.
The recent demand for domestic mining and construction equipment was spurred by aggressive government efforts to execute projects, partly as an impetus for re-election. However, the MCE industry critically depends on consistent project awards and execution, and hence, faces vulnerability during periods of political transition.
Ritu Goswami, Sector Head of Corporate Ratings at ICRA, indicated that the forthcoming disruptions in project award activities are expected to stretch over two consecutive quarters, specifically in Q4 of FY’24 and Q1 of FY’25. Additionally, she pointed out that seasonal factors, like the monsoon, which typically dampens construction activity, would contribute to a subdued sales outlook in the first half of FY’25.
The mining and construction equipment industry’s upturn in the past two years has been a significant driver of growth within the broader infrastructure sector. The equipment used in these industries is vital for the completion of large-scale infrastructure and development projects, which have a trickle-down effect on the economy, bolstering job creation and promoting ancillary industries.
India has seen significant infrastructure investments, aimed at enhancing the country’s connectivity and industrial capabilities. Projects including roads, bridges, airports, and urban development have been at the forefront of the construction agenda. The anticipated slow in the industry could have wider implications on such developmental projects and the economy at large.
As stakeholders within the MCE industry navigate through the predicted turbulence of FY25, strategic adjustments and prudent forecasting will be crucial in mitigating the impact of the impending slump in volumes. Companies may need to re-evaluate their project timelines, resource allocation, and perhaps pivot towards emerging opportunities that could offset the expected downturn in traditional revenue streams.
Industry participants, policy makers, and economic analysts will be closely monitoring the situation as it unfolds to assess the full impact of these predictions on the construction and mining equipment sector, and by extension, on India’s overarching economic health and infrastructural progress.
