Demand for construction equipment dips 17%

New Delhi: Domestic demand for the mining and construction equipment sector fell 16-17 per cent in the January-August period, due to tight liquidity conditions in the market, delayed payment to contractors and an overall slowdown in the government spending on infrastructure activities, ICRA on Tuesday said.

"The domestic demand for mining and construction equipment (MCE) industry contracted sharply by 16-17 per cent year-to-date (YTD) August CY19 on y-o-y basis," it said in a statement.

Given the current scenario, Icra Research said it has scaled down its calendar year 2019 outlook sharply to a decline of 15-17 per cent after factoring in some post-monsoon recovery during the fourth quarter of CY19.

"While revival in demand is expected during CY20 to about 5-10 per cent, the October 2019 (post which production of BS-III vehicles are not allowed) transition to the next emission norm is a potential headwind given the changes in the equipment and its substantial cost implications," the statement said.

"Overall, barring few select top-notch pockets, demand has fallen significantly despite sizable discounting in the market.

Our extensive channel check, pan-India has revealed the depth of demand decline across states like Andhra Pradesh, Telangana, and NCR," said Pave­thra Ponniah, Vice-President and sector head, Icra.

Immediate term demand outlook in the dealer community is also negative, although few expect a recovery in the fourth quarter of 2019, Ponniah said.

Further, lack of liquidity on account of delayed payment by contractors coupled with slowdown in project execution is a cause for concern, Ponniah added.

"Equipment utilisation in few markets is down almost 50 per cent.

Consequently, delinquencies, which were holding largely steady for the construction equipment asset class until Q1 FY2020, are also expected to have increased in the past two months," he said.