ICRA, a leading credit rating agency, projects a decline in the volumes of the domestic Mining and Construction Equipment (MCE) industry for the fiscal year 2025. This decline comes after two consecutive years of robust growth, with a projected decline of 12-15% year-on-year (YoY). Additionally, operating profit margins (OPM) of MCE original equipment manufacturers (OEMs) are expected to contract by 100-150 basis points in FY2025.
The reversal in the growth trend is attributed to several factors, including a slowdown in new project award activity in the fourth quarter of FY2024 and the first quarter of FY2025 due to the Model Code of Conduct enforced during the Parliamentary Elections in April-May 2024. Furthermore, the impact of monsoon-related disruptions on construction activities in the second quarter of FY2025 is expected to contribute to the moderation in sales.
Ritu Goswami, Sector Head of Corporate Ratings at ICRA, said “Pre-election push on project execution by the Government created a strong demand momentum for the MCE industry in the last two years. However, with a likely disruption in project award activity for two consecutive quarters (Q4 FY2024 and Q1 FY2025e) amidst the Parliamentary Elections and monsoon-related impact on construction activities in Q2, H1 FY2025e is expected to see a moderation in sales. While the volumes will ramp up in H2, given the pick-up in new project awards starting Q3 and partly supported by pre-buying due to the CEV-V emission norm transition in January 2025 (deferred from April 2024), ICRA expects FY2025 to see a 12-15% YoY decline (which translates into volumes of 1.14-1.18 lakh units). A similar trend was seen during the previous election periods – FY2015 and FY2020 – as well, with YoY volumes contracting in these years.”
While the near-term demand environment remains challenging, the industry’s long-term prospects remain promising due to the Government’s continued focus on infrastructure development. Increasing mining targets for coal and iron-ore also support MCE demand from the domestic market.
In terms of financial metrics, the aggregate revenues and operating margins for ICRA’s sample set companies are expected to contract by 9-12% and 100-150 basis points, respectively, in FY2025. Despite the expected decline in volumes, relatively stable commodity prices are anticipated to support the cost structure.
Goswami also noted that OEMs based in India are expected to incur a modest capex during FY2025 towards debottlenecking, product development initiatives, and localisation efforts. Despite the moderation in operating margins, the credit profile of industry participants is expected to remain stable in FY2025, supported by low leverage and comfortable liquidity.