Construction equipment revenue to grow 14-15% this fiscal: Crisil, ET RealEstate

October 13, 2023

<p>Representative image. </p>
Representative image.

NEW DELHI: Revenue for the domestic construction equipment sector is likely to grow 14-15% this fiscal on a high base of ~29% last fiscal, according to Crisil Ratings.

This will be driven by continued government focus on infrastructure build-out, especially roads, metros and railways, including projects under the National Infrastructure Pipeline (NIP). Construction activity across the real estate and mining sectors will also be supportive.

In volume terms, the sector should see all-time high sales of ~1.2 lakh units this fiscal, compared with ~1.1 lakh units last fiscal. Earthmoving equipment accounted for ~70% of sales volume last fiscal, material handling and concrete equipment ~22%, while material processing equipment comprised the rest.

Better operating leverage and moderation in raw material (steel) prices are expected to lead to 100-150 basis points improvement in the operating margin of construction equipment manufacturers to ~10.5-11% this fiscal.

The consequent improvement in cash accruals and moderate capital expenditure will help offset the impact of higher working capital borrowings and keep debt metrics healthy, leading to ‘Stable’ credit profiles.

Poonam Upadhyay, director, CRISIL Ratings said, “Manufacturers are also seeing healthy demand from the real estate and mining sectors, and from contractors of bridges, airports and metro corridors. In addition, some amount of pre-buying of equipment is also likely towards the last quarter of this fiscal, with the sector migrating to CEV Stage-V emission norms from April 1, 2024, which will increase equipment prices.”

Increased credit availability from banks and non-banks has been supporting purchases of construction equipment, bulk of which is financed.

With capacity sufficient, construction equipment makers are expected to undertake only moderate capital expenditure, mainly for de-bottlenecking and routine maintenance.

Naren Kartic K, associate director, CRISIL Ratings said, “We expect high working capital intensity to continue due to stiff competition among manufacturers, with longer credit period being offered to customers to gain market share.”

Despite this, gearing and interest cover of manufacturers are expected to remain at healthy levels of less than 0.5 time and over 15 times, respectively.

  • Published On Oct 13, 2023 at 06:00 PM IST

Join the community of 2M+ industry professionals

Subscribe to our newsletter to get latest insights & analysis.

Download ETRealty App

  • Get Realtime updates
  • Save your favourite articles

Scan to download App

Source link

Abhay Singh

Web Developer

Leave a Comment