With the economy descending deeper and deeper into coronavirus chaos, demand headwinds are bound to intensify for the construction equipment (CE) sector. Sandeep Singh, President, Indian Construction Equipment Manufacturers’ Association (ICEMA) in an interaction with ETAuto said the industry is staring at a decline of 23 percent in financial year 2019-2020. Singh added if the coronavirus pandemic persists, the domestic CE players will certainly face the unnerving unknowns in their business operations in the coming months, making it difficult for the industry to comply with new emission standards by October 2020. He also said ICEMA will reach out to the government to postpone the implementation of CE BS-IV norms. Edited Excerpts:
Q. How do you see the performance of the CE industry in 2019-2020 and what were the main pain areas that pulled down the growth prospects?
Till December 2019, the domestic CE industry faced a decline of 25 percent. Things started improving from January 2020 when the government released money, though little by little, to the contractors and finance companies were instructed to lend to MSME and small time contractors.
However, this slight recovery was short-lived. From the beginning of March this year, we felt that customers were delaying their orders. In general, March is considered to be a very good month for CE sales. We expect the domestic CE industry to decline upto 23 percent in the financial year 2019-2020.
The main reasons for downfall were unavailability of funds with the contractors and lower investments by the government for the road projects. A lot of money got stuck with the National Highways Authority of India (NHAI), which is the main driver for our industry besides the irrigation and mining sector.
Throughout 2019 NHAI allocated very few new road projects as compared to the previous year. In 2018, the government had awarded 15,000 km of road projects to NHAI where the actual construction work happened on only 8,000km-10,000km. But due to overall slowdown in the economy, the allocation of new projects contracted drastically and it came down to mere 4,000km – 5,000 km (till December) with the target of completing 7,500 km by March.
These projects mainly got delayed due to land acquisition, poor performance of contractors, and environmental clearence issues. Apart from this, many river linking projects which were announced by the government also got delayed that ultimately led to a contraction in fresh equipment buying.
Q. How massive is the impact of coronavirus on the CE industry supply chain?
We started experiencing few supply hiccups from mid of March. We as an industry import around 30-40 percent of vehicle components from China, Japan, Korea and other European countries. But frankly, we haven’t seen major disruption thus far. But now that we have entered the lockdown period, so from April onwards things will move downward because the spare parts which are being required by the industry to run the machine will not be available any longer as the borders have been sealed and the movement of components have been affected.
We conducted a meeting on 24th-25th March to shut all our plants.
Q. So, what’s your outlook for the financial year 2020-2021?
We believe that the first quarter will be a complete washout. After that even if it revives, it will take 4-6 weeks for the supply chain to get back to normal. So, being a little optimistic here, I feel the June quarter will be at least 50 percent down over the last year period.
Q. Do you think that the CE industry is ready to embrace new emission norms under present circumstances?
CE industry’s BS-IV is equivalent to BS-VI norms for automobiles and that is going to get implemented on wheeled equipment from October 2020. This also means that our industry will move from no regulation to stringent emission standards. Therefore, the impact on the prices of wheeled equipment will be very high from October onward. This will result in less sales of wheeled vehicles and there will not be any growth in this category during the financial year 2020-2021.
All of us are planning to approach the government to delay that implementation of emission norms as in the current scenario this will worsen wheeled equipment sales which is about 50 percent of the total volume of the construction equipment industry.
Q. How is the situation at dealerships?
We were carrying a high inventory till November 2019. The average inventory levels were between 60 to 90 days which gradually came down as the companies reduced productions from October onwards.
For the last six months at Tata Hitachi, we have been shutting down our plants for an average of five days a month. So we were looking at reducing the inventory levels at the dealer end to a 30 days level. But now since plants are shut and machines are not moving, whatever we have dealers are not able to sell. Certainly, dealers inventory level will again shoot up to six weeks now.
Q. In the coming days what are the opportunities the industry will be majorly banking on?
In the budget, the government allocated Rs 100 lakh crore for infra development and we also realised that they have identified a good number of infra projects. We hope that the next financial year will not be as bad as this fiscal year.
I think after this impact of coronavirus the government will certainly pump in money in infrastructure. I expect a turnaround for CE sector in the second half of FY’21.
Source: auto.economictimes.indiatimes.com
