Indian Construction & Mining Equipment Industry: Demand revival on its way
“Demand revival on its way with government push on spending and robust rural demand”
On 6th October 2020, the team at CVF Off Highway conducted a live panel discussion on the “Indian Construction & Mining Equipment Industry” from 12:30 – 13:50 hrs. The webinar had a total registration of over 500 attendees with a comprehensive mix of individuals across OEMs, Component Suppliers, Dealers, NBFC and Investment Houses.
The webinar included noted speakers such as Mr. Jaideep Shekhar – MD (Asia & AMEAR) at Terex Materials Processing India, Mr. Ajay Mandhar – CEO at Escorts Construction Equipment, Mr. MV Rajasekhar – Director (Mining and Construction) at BEML, Mr. Hemant Mathur – Assistant VP Sales and Marketing at Tata Hitachi and Mr. Vikram Sharma – Advisor (India and South Asia) at Kobelco Construction Equipment India and Past President, ICEMA.
Moderating the discussion, Ms. Pavethra Ponniah – VP and Sector Head Credit Ratings at ICRA, begun with a question on demand recovery in the short term i.e. 6 months – 1 year. In response, Mr. Sharma shared that the Industry was well on its way to recovery before it was hit by COVID. However, from near washout in the month of April, demand has been steadily increasing month on month. Infact, in the month of September 2020, the industry witnessed better numbers as compared to September 2019. While mining is doing very well, road building has also picked up. While H1 had finished -37% compared to last year, he expects H2 to be +21% compared to last year. This year in total would be -15% in general for the industry he felt. He also stated that financing companies are supporting the industry very well, even though moratorium has been used by few vendors. For next year, some pull back from government could be there due to low collections in government coffers. Given this year base is low, next year could be 40% higher. To sum up, the industry would have lost 2-3 years in terms of coming back to 2019-2020 in terms of pre-COVID levels.
Mr. Mandhar mentioned that from an Escorts standpoint, recovery started from July onwards and September has been a good month. Escorts in general had a smaller base in FY20 and from that standpoint Escorts expects to bounce back faster. Government has also announced 1 billion for infrastructure projects from which approx. INR 15 per Rs 100 flows into construction equipment industry which should give a good thrust.
Ms. Ponniah then touched upon the difference between Urban and Rural demand revival in a post COVID world. She asked about the implications of the rampant spread of COVID and the impact of rural schemes on demand. Mr. Mathur mentioned that government has been able to make money available to rural India. Demand recovery of backhoe loaders has been very quick. The story from the last 2-3 months has changed significantly. Construction activity in H1 for roads has been more than 1,000 Kms over last year. The government has already spent 95% of the budget for majority of the schemes planned for the whole year. If sales of tractors and backhoe loaders are considered, then the momentum is getting created, enabling sale of a large number of machines. Mr. Mathur felt that the demand is sustainable and rural India shall pull things through. Even the money that state is spending on road is higher than what it was in FY20.
Mr. Mandhar also thought similarly and shared that if you look at the tractor industry, the industry is expecting 10% growth over last year. Also, India has about 3.3 MN KM of road, of which 80% is rural. Infact in rural areas we are looking at 100 – 115 KM of construction per day. MNREGA registrations have also gone up and government will keep spending fair bit of money there moreover COVID seems to be largely an urban phenomenon. To sum up, rural segment shall be the leader in bringing everything back on track.
Ms. Ponniah then requested the participants to share their views on Urban demand. Mr. Sharma responded that in Urban, one aspect is Real Estate demand which is anybody’s guess as there is limited insight. All the promoters are severely over leveraged and foreign investors are also staying wary of further investments. Real Estate demand for next 2-3 years seems out of bounds. He felt that other sectors shall be back to normal in a month’s time as everyone is seeing more activity in urban projects. Mr. Mathur added the only qualification to Mr. Sharma’s statement that while 70% of the labour is back and production has started. Construction projects for urban depend on a specific set of skills as projects are more technically demanding such as Metro projects. He shared that might lead to a slight delay in urban demand revival.
Mr. Rajasekhar shared that in their company 80% of share is mining and 20% from construction. For BEML, growth is coming from the mining segment. Government of India has given instructions to all the government PSUs such as Coal India etc. to spend all their budgets by December 2020. When construction segment is considered, Government cannot give the directive as players are smaller and government needs to give incentive instead of directives. Government needs to clear the payments of contracts at a fast rate to ensure a sustainable growth rate.
Mr. Jaideep Shekhar shared that there has always been a bit of concern as to how much money is going to get diverted from construction to other priority sectors. However, pace of contract allotment has picked up from the government. While the defence spending has also gone up, with spending increasing in North East and J&K. He felt that for sure there is a focus from the government to restart the economy after COVID. Infrastructure is the largest employee of semi and unskilled workers and the government realises this and therefore most of the states are speeding up the existing projects to absorb the influx of reverse migration. He mentioned that this shall also sort out the other challenges w.r.t unemployment that the government is facing.
Several polls were also run among the attendees to gather the view of audience at large on demand recovery and the current state of the industry. The audience felt that the maximum impact on demand recovery will come from government spending and that it will take 6-12 months to get back on track. They also rated the current state of the industry at a healthy and positive 7 on 10.
The session ended with an interactive Q&A segment wherein a total 50+ questions were asked. While the speakers couldn’t answer all the queries given the paucity of time, they were able to address the majority of the concerns of the audience during the panel discussion.
In case you missed the live session, you can view a recording of the session by clicking here. And to view our post webinar report you can click here. If you want to be a part of our next session, please get in touch with Mr. Raghav Shankar on +91 9599881027 or email him on raghav@threefold.in