Construction Equipment Market Faces Degrowth: CRISIL

With the Covid-19 pandemic and attendant lockdown halting construction activities and labourers heading home, the construction equipment (CE) sales volume has fallen 70 per cent on-year in the first quarter and utilisation nearly halved, according to a CRISIL research report. The second half of the FY21 could see volume retract by a third on-year in FY21, especially since public spending would be diverted towards healthcare and public welfare, it added. Excavators (23 per cent of total sales) may see a sharper volume de-growth. Backhoe loaders (45 per cent) may be relatively less impacted owing to their lower cost and multi-functionality. Crane volume (9 per cent) is expected to dip with slowdown in the cement, power and auto sectors. Compactor volume (4 per cent) will compact with 10-13 per cent decline in highway construction on-year in FY21. Operating margins, which fell 350-400 basis points (bps) to 7-8 per cent in FY20, could contract another 200-250 bps, CRISIL said. A drop in utilisation would translate to higher fixed costs (25-30 per cent of the total), driving margins down. But a 6-7 per cent decline in steel prices might offer some cushion.1