The initial data released by Indian Construction Equipment Manufacturers Association (ICEMA) shows that the mining and construction equipment (MCE) business in India showed a 5 per cent YoY growth in volumes in Q1 FY25. The industry was actually anticipating a decline in domestic demand in H1 FY25, despite the fact that this increase has been moderate in comparison to the 20 per cent YoY rise observed in Q1 FY2024.
The segments that showed YoY increase of 5-8 per cent in Q1 FY25 were earthmoving and concreting equipment, respectively, and these growths were the main drivers of the growth in domestic sales (+5 per cent YoY). The segments reporting flat volumes were road (+1 per cent YoY), material handling (+1 per cent YoY), and material processing equipment (-2 per cent YoY).
Talking about the report, Ritu Goswami, Sector Head – Corporate Ratings, ICRA, said, “While the road construction activity remained weak in Q1 FY25, relatively strong activity in mining and real estate sectors provided some support to the overall volume growth. With renewed confidence regarding policy stability towards infrastructure-fuelled economic development, the new project award activities (and MCE volumes) are expected to ramp up faster than previously anticipated in H2 FY25.”
In India, 35–45 per cent of MCE sales are driven by road building, with the remaining 20 per cent coming from mining, 10–20 per cent from real estate and other sources. In Q1 FY25, trends appear to have been inconsistent across all industries. The execution data from MoRTH reflects a decline in road execution by 14% YoY in Q1 FY2025
However, mining for iron ore (+4 per cent YoY in Apr-May), limestone (+2.6 per cent YoY in Apr-May), and coal (+8 per cent YoY) showed ongoing traction, indicating strong demand momentum in the user industries like energy, steel, and cement. Healthy residential real estate demand supported concreting equipment volumes while YoY growth seen in port cargo traffic and rail freight is likely to have aided the demand for material handling equipment.
Notedly, the road sector’s awarding activity has been slowing down for the past 15 months because the Cabinet has not yet approved the revised cost for the Bharatmala Pariyojna I plans. Getting this approval will be essential to accelerating the pace of awards during the current fiscal year.
In other areas, there is good news regarding the Budget FY2024–2025’s substantial expenditure on the Jal Jeevan Mission, PM Gram Sadak Yojana, and PM Aawas Yojana, three programs that have been key contributors to the demand for new equipment.
“While ICRA expects the construction sector gross value added (GVA) to ease to 4-4.5 per cent in Q1 FY2025 against 8.6 percent in Q1 FY24, the same is estimated to expand by approximately 7.0-7.5 per cent in FY25 versus 9.9 per cent in FY24, Given the better-than-expected Q1 FY25 performance, ICRA expects a relatively moderate 5-7 per cent volume contraction in FY25. The rental yields have softened in Q1 FY25 compared to Q4 FY24 levels and are expected to remain flattish on a YoY basis for the full fiscal,” Goswami added.
Since the first week of April 2024, steel prices have been rising in terms of cost. Additionally, because of ongoing difficulties in the Red Sea region, container freight charges nearly tripled in Q1. Due to its significant reliance on imports (between 45 and 50 per cent by value), the local MCE industry is expected to be affected by the Red Sea crisis. This is because rising commodity and other input prices could have an adverse effect on OEM margins.