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ICRA: GoI’s infra push to spur mining & construction equipment demand, despite rising equipment prices

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ICRA Ratings predicts that in the context of the government’s promotion of infrastructure construction, the demand for the mining and construction equipment (MCE) industry will rise healthily in the 2021 fiscal year, mainly due to the strong sales in the first quarter of the 2021 fiscal year (approximately accounting for the annual estimated sales volume). 40%) to promote. However, with changes in emission standards, sharp rise in input costs and unstable monsoons, as equipment prices rise, the second wave of Covid does affect sales after the first quarter of 2021. Compared with the previously estimated 15-20% growth, the full-year growth of CY2021 is expected to remain around 15-17%; due to the base effect, after two weak years (2020 and 2019), optically It looks high. Despite the strong growth in FY2021, overall sales are expected to be about 15% lower than FY2018 levels.

Mayank Agrawal, department head of ICRA Ltd and assistant vice president of corporate ratings, said: “In the context of stagnant equipment rental yields, irregular monsoons and price increases have affected customer sentiment, which in turn affected transaction volume. The second in 2021 In the quarter, although the low base effect supported 78-80% year-on-year growth, due to the second wave hindering sales momentum, sales were still about 30% lower than the second quarter of 2019. Unlike previous estimates, the third quarter of 2021 The impact of pre-orders is limited because most of CEV-III’s inventory will be absorbed in the first half of 2021. Therefore, price increases due to changes in emission standards started long before the actual deadline. Compared with the second quarter of 2021, it is expected Sales in the third and fourth quarters of 2021 will increase sequentially; compared with the third and fourth quarters of 2020, it will continue to be weak.”

During the period, the equipment utilization rate remained moderate. At the same time, the cost of ownership increased due to the increase in equipment and fuel costs, which put pressure on rents and affected the profitability of CE operators. It is estimated that changes in CEV IV emission standards have increased costs by 10-15%, while sharp increases in input costs (steel and freight) have resulted in an additional 5-10% increase. The sharp increase in the price of new equipment has also led to an increase in demand, which has led to an increase in the price of second-hand equipment. Although supply chain problems are widespread, the impact of chip shortages on the CE field is relatively small compared with the automotive industry. However, ICRA’s interactions with industry participants indicate that spare parts are facing ongoing challenges, especially imported parts.

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Agrawal added: “ICRA’s outlook for the industry remains stable against the backdrop of government promotion of infrastructure construction and favorable growth prospects. Most OEMs’ profitability in FY2021 has improved, thanks to Strong recovery in sales since August 2021.

News Source : NBM&CW

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