The Business Bytes
BHUBANESWAR, APRIL 18, 2024 (TBB BUREAU): Leading credit rating agency ICRA has projected a decline in the volumes of the domestic Mining & Construction Equipment (MCE) industry for the fiscal year 2025, following two consecutive years of robust growth.
The industry witnessed remarkable growth rates of 26% in FY2023 and 24% in FY2024. However, ICRA anticipates a reversal of this trend in FY2025, driven by a slowdown in new project award activity during the fourth quarter of FY2024 and the first quarter of FY2025. This slowdown is attributed to the Model Code of Conduct in force during the Parliamentary Elections in April-May 2024, until the announcement of results on June 4, 2024.
Ritu Goswami, Sector Head of Corporate Ratings at ICRA, highlighted that the pre-election push on project execution by the Government spurred strong demand momentum for the MCE industry in the past two years. However, the disruption in project award activity due to the Parliamentary Elections and monsoon-related impacts on construction activities are expected to lead to a moderation in sales during the first half of FY2025.
Despite this near-term challenge, the long-term prospects for the MCE industry remain promising, buoyed by the Government’s continued focus on infrastructure development. Goswami noted the increasing mining targets for coal and iron-ore aimed at reducing import dependency and meeting the needs of a growing economy, which are expected to drive MCE demand from the domestic market.
In terms of financial metrics, ICRA expects aggregate revenues and operating margins for its sample set companies to contract by 9-12% and by 100-150 basis points, respectively, in FY2025. While relatively stable commodity prices are expected to provide support to the cost structure, potential increases in logistics costs or supply chain disruptions pose downside risks to estimates.
ICRA remains optimistic about the industry’s outlook, citing healthy order books and the thrust on execution by Engineering, Procurement, and Construction (EPC) players as factors that will support equipment utilization and rental yields on a year-on-year basis.
