Despite zero sales volume in April-June period on account of the nationwide lockdown, the domestic construction equipment (CE) industry may see moderate volume growth this fiscal as dealers have reported a rebound in demand in the second quarter, ratings agency Icra has said.
Icra’s forecast, which is based on a survey of 13 construction equipment dealers from across the country, also stated that most dealers expect a 5-10% hike in prices next fiscal on account of new emission norms, which are to come into effect from April 2021 for the CE industry. These dealers are spread across Maharashtra, Andhra Pradesh, Bihar, Jammu and Kashmir, Delhi, Haryana, Uttar Pradesh, Uttarakhand, Tamil Nadu, Karnataka, Kerala, Madhya Pradesh and Rajasthan.
However, the key takeaway is that despite the strong pick up in volumes, which is supporting dealer optimism, uncertainties persist. While the industry experienced significant volume contraction during April-June, dealers in most states reported strong revival in volumes from July-September quarter. Demand ramp up has continued during the third quarter and this is expected to result in moderate volume growth in FY2021, despite Q1 FY2021 being a complete washout in terms of volumes and business activity.
Post a sharp volume contraction in FY2020 due to the general elections, the pandemic-induced lockdown and economic slowdown, the CE industry was expected to pummel during FY2021.
The findings indicate that 85% of dealers expect to register volume growth in FY2021 as opposed to about 50% of dealers expecting more than 15% volume de-growth during a similar survey undertaken in April.
According to the survey, regular fund flow from the central government has supported demand from the National Highways Authority of India (NHAI), Pradhan Mantri Gram Sadak Yojana (PMGSY), irrigation projects and rural infrastructure. Further, a steady pick up in activity under the mining segment has also supported volumes from Q2 FY2021 onwards.
Even as some southern and western states continue to grapple with absence of ample activity under state projects, dealers in northern and central states have reported a pick up in activity under state projects.
While new projects have not been announced, activity has picked up under old projects, it stated.
As per the survey, most dealers reported that a cautious lending environment leading to lower availability of financing has also contributed to restriction in volume growth.
