ICRA on Wednesday said the mining and construction equipment industry is likely to grow by 15-20 % in 2021 but stressed that the economy, in the grip of a pandemic, could throw up sudden negative surprises.
The first quarter of 2021 is estimated to have reported a strong equipment demand growth of 45-50 per cent, ICRA said in a statement. “Following a 10-12 per cent contraction in CY2020, dragged down primarily by the 39 per cent decline in H1 CY2020, the mining and construction equipment (MCE) industry is poised to grow by 15-20 per cent in CY2021 (5-10% in FY2022),” it said.
However, the economy in the grip of a pandemic could throw up sudden negative surprises, as witnessed in April 2021, when demand was relatively subdued.
While overall equipment demand will be strong in 2021, partly due to the low base of 2020, volatility in demand is likely, with a strong first quarter, a relatively subdued second quarter in the grip of the second wave, and the emission related pre-buy pick-up and post-buy slump in the third and fourth quarter of 2021.
While the second wave throws up challenges, particularly in the manpower-intensive construction sector, ICRA said that it expects a better prepared ecosystem, buffered by ample liquidity to limit stoppage of work, provided the lockdowns are limited to a relatively narrow window and are more localised, preventing a massive wave of reverse migration.
“Support to ICRA’s equipment demand estimates originates from – the GoI (Government of India) continuing its ‘Build India’ momentum to counter the economic slowdown and the ample liquidity in the ecosystem. Tailwinds from any pick up in state capex, compared to the pullback in FY2021, and strong construction activity picking up in other sectors like ports, metros, and airports, could aid demand,” Pavethra Ponniah, Vice-President and Co-Group Head, ICRA said.
“On the contrary, demand can be hit by the Covid second wave restricting mobility and equipment utilisation for a prolonged period, which in turn could result in an increase in delinquencies and lender pull-back and a likely equipment price increase of 5-10% for the emission norm change,” Ponniah added.
Dealer checkpoints predict a more subdued 0-5 per cent volume growth in FY’22 against ICRA’s expectations of a 5-10 per cent volume growth. That said, given the current uncertainty in the market, following the huge surge in COVID-19 cases in the recent weeks, ICRA believes that ground touch points are heavily clouded by the immediate term.
Continuing with the 15-20 per cent growth expected in 2021, ICRA said that it expects demand growth to sustain in 2022 and 2023, before declining in 2024 pre-and post-the general elections during April-May 2024.
