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ICRA: CE dealers cautiously optimistic on volume growth in FY2023

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The demand for Mining and Construction Equipment tapered from Q1 FY2022, post a record high volume in Q4 FY2021. This follows the second Covid wave along with the increase in equipment prices and muted rentals. ICRA has conducted a comprehensive survey of CE dealerships in March 2022, among 18 MCE dealerships encompassing 13 OEMs, eight equipment segments spread across 12 states. The findings indicate majority (78%) of the respondents expect a year-on-year (Y-o-Y) volume decline of ~10% during Q4FY2022. However, they expect volume growth of around 7% in FY2023.

Volumes in the sector are expected to be constrained by increasing equipment prices and changes in emission norms, muted rentals and extended monsoon-related impediments, according to ICRA. The findings of ICRA’s latest survey clearly reflects positive sentiment over the next six months with none of the respondents expecting a decline in volumes. Majority of the dealers estimate a sub-10% growth, highlighting cautious mood and persistence of uncertainties.

Survey indicates a 10%-20% increase in prices of equipment, mainly due to increasing input cost and change in emission norms. Equipment utilisation levels moderated primarily due to extended monsoon and its impact on the infrastructure activities. A majority of respondents indicated that inventory holding has come down to up to 30 days, compared to 60 days of inventory, pre-Covid.

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ICRA’s outlook on the mining and construction industry continues to remain stable, with expectations of a pick-up in demand following continued thrust on infrastructure by the GoI. Nevertheless, tightening of LTVs by financiers, muted rentals and continued increase in equipment prices poses downside risk to demand estimates.

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