The Indian mining and construction equipment industry can expect a small increase of 2-4 per cent in growth during 2014-15 without any major revival in the sector during the first nine months of the next fiscal, ICRA has said. The investment information and credit rating agency attributes the marginal rise to the current investment environment and sharp de-growth in demand in mining and construction equipment.
“The Indian construction equipment industry is witnessing its second consecutive year of volume de-growth during 2013-14 with volume demand estimated to fall by around 15-17 per cent to around 55,000-56,000 units,” ICRA said in its report. This decline comes close on the heels of 8-10 per cent de-growth witnessed in 2012-13, when industry volumes fell to around 66,000.
Prior to this, the domestic construction equipment sector witnessed two years of healthy annual growth of 21 per cent and 45 per cent. Demand for mining equipment is estimated to have fallen more severely by over 30-40 per cent in the private sector with mining in India continuing to suffer due to regulatory roadblocks. The past six years have typically seen two-year cycles of contraction and expansion in the construction equipment industry, correlating with the economic growth and construction activity in the country, the report noted.
Cautious optimism
Globally, there is cautious optimism that the sector will improve. Volvo CE, for instance, expects the prospects for 2014 to show some improvements as global markets recover. Markets in China and Europe are likely to increase in the range of 0-10 per cent measured in units, while North America, South America and Asia (excluding China) are all expected to be in the range of minus 5 per cent to plus 5 per cent.
“For 2014, we expect a slight improvement in market demand, mainly driven by China and Europe,” commented Martin Weissburg, the new President of Volvo Construction Equipment.
Ron DeFeo, Chairman and CEO, Terex Corporation, concurred with this prediction. “We see some signs of improvement in many parts of the world although this is tempered with some continued market uncertainty, particularly in developing markets. Overall, we believe that the global economy will be stronger in 2014, but still modest when viewed against historic demand levels,” he said, while announcing his company’s fourth quarter and full year 2013 results. Terex Corporation, which has a major presence in India, is a diversified global manufacturer of a broad range of equipment including mining, construction and infrastructure.
Recovery hopes
Back home, de-growth in mining and construction equipment volumes is a nationwide phenomenon, ICRA noted, adding that some pockets like Tamil Nadu and Kerala appeared to be more severely affected than the others. However, most dealers are pinning their recovery hopes on expected revival in investment cycle after the general elections in April-May this year.
“The customer mix also appears to have undergone a change with subdued volumes from the hirer segment which seems to be weighed down by the idle inventory. While the first time buyer segment has remained relatively resilient, the volumes/ticket size from this segment is generally small thereby having marginal impact,” the report stated.
In spite of the poor forecast for 2014, ICRA believes that the Indian mining and construction equipment industry has a healthy growth potential in view of the current low levels of quality infrastructure and the limited penetration of equipment. However, any improvement in market sentiment will hinge on the political scenario after the general elections, chiefly a stable government in New Delhi, and how proactive the new political dispensation is on the infrastructure front, particularly the $1 trillion investment proposed to be spent during the ongoing the 12th Five-Year Plan.
