IMMENSE POTENTIAL AHEAD

India is the world’s fastest growing economy and aims to be a USD 5 trillion economy by 2030 and a developed nation by 2047. This calls for a massive investment in world class infrastructure as the main driver of the economy.

The Indian construction industry is undergoing a massive transformation, with the government increasingly focusing on infrastructure projects in transportation and logistics, urban infrastructure, water and irrigation etc. The Indian construction sector has shown remarkable resilience, even during global disruptions.

Current market scenario

The Indian construction equipment industry has already been witnessing unprecedented growth in demand across all equipment segments, resulting in two back-to-back record-breaking annual results. As construction equipment comprises 15-20% of the average construction project cost, the rapidly growing construction sector is expected to drive demand for the construction equipment industry’s products in the coming years, in existing as well as emerging segments.

According to a recent ICRA report, the Indian mining and construction equipment (MCE) industry has reported a 5% YoY growth in volumes in Q1 FY2025 as per the initial data released by the Indian Construction Equipment Manufacturers Association (ICEMA). While this growth has been modest, compared to the 20% YoY expansion seen in Q1 FY2024, the industry was, in fact, bracing for a contraction in domestic demand in H1 FY2025. This expectation was in line with the previous election cycles, driven by a slowdown in the new project award activity (due to the Model Code of Conduct in place on account of the Parliamentary Elections in April-June 2024) and the monsoon-related impact on construction activities in Q2 FY2025. Nonetheless, the performance in Q1 reflects customer optimism over the Government’s sustained focus on infrastructure development and the consequent impact on MCE demand.

Providing more insights, Ritu Goswami, Sector Head - Corporate Ratings, ICRA, said: “While the road construction activity remained weak in Q1 FY2025, relatively strong activity in mining and real estate sectors provided some support to the overall volume growth. With renewed confidence regarding policy stability towards infrastructure-fuelled economic development, the new project award activities (and MCE volumes) are expected to ramp up faster than previously anticipated in H2 FY2025.”

In Q1 FY2025, the growth in domestic sales (+5% YoY) was driven by the earthmoving and concreting equipment segments, which saw 5% and 8% YoY growth, respectively. The road (+1% YoY), material handling (+1% YoY), and material processing equipment (-2% YoY) segments reported flattish volumes.

Road construction drives 35-45% of MCE sales in India followed by mining (20-30% share), real estate (10-20%), and others. The trends seem to have been mixed across the sectors in Q1 FY2025. The execution data from MoRTH reflects a decline in road execution by 14% YoY in Q1 FY2025. In contrast, mining of coal (+8% YoY production as per Coal India Limited), iron ore (+4% YoY in Apr-May), and limestone (+2.6% YoY in Apr-May) reported continued traction, indicating strong demand momentum in the user industries like energy, steel, and cement. Healthy residential real estate demand supported concreting equipment volumes while YoY growth seen in port cargo traffic and rail freight is likely to have aided the demand for material handling equipment.

Going forward, the pace of awarding activity in the road sector has remained muted over the last 15 months due to the pending Cabinet approval for the revised cost pertaining to the Bharatmala Pariyojna-I plans; receipt of the same will be crucial for pushing up the pace of awards in the current fiscal. In other segments – healthy outlay in Budget FY2024-25 for the Jal Jeevan Mission, the PM Gram Sadak Yojana, and the PM Aawas Yojana – schemes which have been among the major drivers for new equipment demand – is a positive. While a pick-up in state government capex could yield a faster turnaround in construction activity/MCE volumes, given the severity of the monsoons in several states so far, the same will be more ascertainable only after a few months.                

“While ICRA expects the construction sector gross value added (GVA) to ease to 4-4.5% in Q1 FY2025 (Vs. 8.6% in Q1 FY2024), the same is estimated to expand by ~7.0-7.5% (Vs. 9.9% in FY2024) in FY2025, supporting the demand for MCE in the second half of the fiscal. An adequate order book of construction entities and their thrust on execution will support equipment utilisation levels. Some pre-buying due to the CEV-V emission norm transition in January 2025 should aid the volume offtake in H2 FY2025. Given the better-than-expected Q1 FY2025 performance, ICRA expects a relatively moderate 5-7% volume contraction in FY2025. The rental yields have softened in Q1 FY2025 compared to Q4 FY2024 levels and are expected to remain flattish on a YoY basis for the full fiscal. A material improvement in road sector awarding activity remains crucial and a key monitorable,” Goswami added.         

Embracing new technology

In order to meet the rapidly transforming demand for construction equipment, the CE industry players are adopting the latest technologies and innovations, to produce machines with higher levels of efficiency, productivity, safety and sustainability. This process is being facilitated by adoption of the CE Technology Roadmap 2035 which was prepared by ICEMA in consultation with industry and government experts, and released in August 2023 by Shri Nitin Gadkari, Hon’ble Minister, MoRTH. The Technology Roadmap is serving as a step-by-step guide for CE manufacturers to embrace the three salient focus areas of Jobsite Safety, Jobsite Solutions and Sustainability as they pursue the path of tech-enabled growth.

Making India as manufacturing hub

The Indian construction equipment industry, in pursuing the objectives of CE Vision Plan 2030, is poised to emerge as the prime global manufacturing hub for construction equipment by the end of the decade. Capacity, Capability and Competitiveness are the three important aspects all OEMs are intentionally building. Capacity will help the OEMs meet the scale of demand that is likely to emerge in the coming years. Capability will help them to stand out on the Quality of products that is on par/better than global benchmarks, and lastly, competitiveness is important as India positions itself as not only a major market for CE, but also the epicenter of manufacturing for CE industry.

Looking ahead

As India is on the path to becoming the world’s third-largest construction market, the Indian construction equipment industry is rapidly modernizing to keep up with the increasing scale and complexity of the projects. With immense growth potential in the coming years, the construction equipment industry is gearing up to explore the new opportunities.