ICRA: Mining and Construction Equipment Industry Faces 12-15% YoY Volume Drop in FY2025

Key Highlights:
•    ICRA expects fewer sales for construction equipment in 2025.
•    Companies making this equipment may earn less profit next year.
•    Slow project approvals and bad weather are causing the decline.
•    But, there's hope for the future with more government projects.
•    Even though earnings might drop, companies are still investing in improvements.

According to ICRA, an esteemed credit rating agency, the domestic Mining and Construction Equipment (MCE) industry would see a fall in volumes in fiscal year 2025. The drop follows two years of strong growth, with a forecast YoY decline of 12-15%. Furthermore, operational profit margins (OPM) for MCE original equipment manufacturers (OEMs) are predicted to drop by 100-150 basis points in FY2025. 

The downfall is attributed to several factors, including a slowdown in new project award activity in the fourth quarter of FY2024 and the first quarter of FY2025 as a result of the Model Code of Conduct implemented during the Parliamentary Elections in April-May 2024. Furthermore, monsoon-related delays to construction activity in the second quarter of FY2025 are projected to contribute to a slowdown in sales.

Ritu Goswami, Sector Head of Corporate Ratings at ICRA, stated that the government's pre-election focus on project completion resulted in a strong demand momentum for the MCE business over the previous two years. However, with an anticipated disruption in project award activity for two consecutive quarters (Q4 FY2024 and Q1 FY2025e) due to the Parliamentary Elections, as well as a monsoon-related impact on construction activities in Q2, H1 FY2025e sales are predicted to moderate. While volumes will increase in H2, as new project awards commence in Q3 and partly supported by pre-purchase due to CEV-V emission standard change in January 2025 (postponed from April 2024), ICRA is projected to decline by 12-15%. Expected in FY2025 (which translates to volumes of 1.14-1.18 lakh units). A similar trend was evident during the previous election times, FY2015 and FY2020, with YoY volumes dropping in both years."

While the near-term market climate remains challenging, the industry's long-term prospects are bright because to the government's sustained emphasis on infrastructure development. Increased mining plans for coal and iron ore increase MCE demand in the local market.

In terms of financial, ICRA's sample set companies' aggregate sales and operating margins are predicted to decline by 9-12% and 100-150 basis points, respectively, in FY2025. Despite the forecast volume drop, commodity prices are expected to remain reasonably stable, supporting the cost structure.

Goswami further stated that Indian OEMs are projected to spend minor capital expenditures during FY2025 for debottlenecking, product development activities, and localization efforts. Despite moderate operating margins, industry participants' credit profiles are likely to remain steady in FY2025, aided by low leverage and adequate liquidity.

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CMV360 Says

ICRA, a top credit rating agency, predicts a decline in the Mining and Construction Equipment (MCE) industry's sales by 12-15% in FY2025 due to disruptions in project awards and construction activities.

Despite challenges, long-term prospects remain positive with government infrastructure focus. Financially, revenues and margins are expected to decrease, but stable commodity prices and modest capex support stability in the industry's credit profiles.