Rating agency ICRA said on Thursday that it expects the sales volume of the Indian mining and construction equipment (MCE) industry to decline by 5-7 per cent y-o-y in FY25, compared to its earlier estimate of 12-15 per cent.

This revision follows better-than-expected domestic sales in the first half of FY25, which grew by 2 per cent y-o-y despite disruptions caused by the General Elections and monsoon season, it said.

“The likely lower decline of MCE sales volume in the current fiscal also reflects customers’ optimism in the sustained policy focus on infrastructure development. However, ICRA remains cautious about the potential impact of sluggish project awarding and a tightening in the financing environment, which could restrict demand in the second half of FY25,” it added.

Sector Insights

ICRA Sector Head of Corporate Ratings Ritu Goswami said that project awarding activity in the road segment (the major driver for domestic MCE sales) has remained weak over the past 15-18 months. While a surge in the government capex is expected in H2 (given the pending budgetary outlay).

ICRA estimates that the annual awarding by the Ministry of Road Transport and Highways (MoRTH) in FY25 to be similar to the level of FY24 and significantly lower than FY21-FY23 levels, she added.

“Given the lead time between project awarding and commencement of work, equipment purchasing by road developers may be deferred till next year. Demand from other user industries will only partly offset this gap. Additionally, tight financing scenarios by way of lower loan-to-value ratio, greater scrutiny of loan applications or higher loan rejections may result in deferral of new equipment purchase by first-time (retail) buyers and constrain offtake for the full year,” Goswami said.

Road construction accounts for 35-45 per cent of MCE sales in India, followed by mining at 20-30 per cent, real estate at 10-20 per cent and other sectors such as railways, water supply, power etc.

Growth drivers

In H1 FY25, the growth in domestic sales was driven by the earthmoving and material processing equipment segments, which saw a 5 per cent and 1 per cent y-o-y growth, respectively. Road construction (-9 per cent), material handling (-7 per cent) and concreting equipment (-4 per cent) segments reported a decline in volumes in H1 FY25 on an annual basis.

The performance trend was mixed across the major sectors in H1 FY25. In the road construction segment, data from MoRTH indicated a decline in execution by 7 per cent and awarding by 34 per cent in 5M FY25 on a y-o-y basis.

In contrast, despite the impact of the monsoon on the mining activities in Q2, coal production (up 5.8 per cent on a y-o-y basis in H1 FY25) and iron ore production (up 8.9 per cent on a y-o-y basis in 4M FY25) reported growth, indicating healthy demand momentum in the user industries like energy, steel and cement. In addition, the ongoing real estate upcycle has supported the overall MCE sales.

On the medium-term outlook, Goswami said “With Construction Equipment Vehicle (CEV) — V emission norms getting implemented from January 2025, which may entail price hikes, some pre-buying is expected towards the end of FY25 and Q1 FY26.”

Strong focus towards improving transportation infrastructure (roads, railways and airports), with healthy budgetary outlays for the Pradhan Mantri Gram Sadak Yojana, Pradhan Mantri Awas Yojana and Jal Jeevan Mission, have been among the key growth drivers for new equipment demand in the recent years.

“Sustenance of these initiatives, coupled with continued focus on energy security (as reflected in increased coal mining targets/reduced imports) and rising mechanisation across infrastructure projects, reflects a positive demand outlook for the MCE industry over the medium term,” Goswami noted.