FCC

Construction equipment industry anticipates 14-15% revenue surge

2023-11-08

According to a report by CRISIL, the domestic construction equipment industry is poised for substantial growth this fiscal year with an anticipated revenue surge of 14 to 15 per cent. This follows a robust 29 per cent increase in the previous fiscal period. The driving force behind this expansion is the government's unwavering commitment to infrastructure development focusing particularly on highways metros trains and projects outlined in the National Infrastructure Pipeline (NIP). Construction activities in the real estate and mining sectors will also contribute significantly to this growth.

Poonam Upadhyay Director of CRISIL Ratings emphasised the positive impact of accelerated road construction accounting for 40 per cent of the demand for construction equipment on the industry's growth trajectory. Manufacturers are experiencing strong demand from the real estate and mining sectors and bridge airport and metro corridor contractors. Additionally, a surge in equipment purchases is expected in the last quarter of this fiscal year due to the impending transition to CEV Stage-V2 emission norms from April 1 2024 leading to increased equipment prices.

The industry is set to achieve a record-breaking sales volume of 1.2 lakh units in this fiscal year up from 1.1 lakh units in the previous year. Earthmoving equipment dominated the sales constituting 70 per cent of the volume followed by concrete and material handling equipment at 22 per cent and material processing equipment accounting for the remaining 20 per cent as per the report.

Construction equipment manufacturers are anticipated to witness a rise in operating margins by 100-150 basis points reaching 10.5 to 11 per cent this fiscal year. This growth is attributed to improved operating leverage and a stabilised price trend for raw materials particularly steel. The analysis covering 17 construction equipment manufacturers responsible for 75 per cent of the industry's revenue substantiates these findings.

Moreover, the increase in working capital borrowings is expected to be offset partially by enhanced cash accruals and moderate capital spending resulting in Stable credit profiles for businesses in the industry.