CRISIL Predicts 4-6% Growth for India’s Construction Equipment Industry in FY25

Key Highlights:

• India's construction equipment sector is expected to grow by 4-6% in FY25, reaching around Rs 83,000 crore.
• The growth rate is slower than FY24's 27%, due to a decline in road construction activity.
• Earthmoving equipment, mainly used for road construction, contributes 70% of the sector's volume.
• New emission norms and safety standards for construction vehicles will be enacted in January 2025.
• CRISIL predicts stable operating margins of 10-10.5%, despite challenges from sluggish demand and higher product prices.

India’s construction equipment sector is expected to grow by 4-6% in the current financial year, reaching around Rs 83,000 crore, according to a CRISIL Ratings analysis. This growth is much lower than the 27% increase seen in FY24, where sales peaked at around 1.35 lakh units, driven by strong demand in roads, railways, and mining sectors.

Reasons for Slowdown

Anuj Sethi, Senior Director at CRISIL Ratings, noted that infrastructure activities were hampered in the first quarter due to labour disruptions and delays in project awards amid the general elections. He also mentioned that the awarding of road projects is expected to drop by 25% this fiscal year, affecting sales of earthmoving and road construction equipment.

The slowdown is primarily attributed to lower volumes caused by a decline in road construction activities. Earthmoving equipment, which makes up 70% of the sector’s volume, is heavily used in road construction, contributing to the reduced demand.

Stable Profit Margins for Equipment Makers

The construction equipment industry’s profitability is expected to remain stable, with operating margins likely to stay in the range of 10-10.5%. This is supported by lower input costs and steady cash generation. Companies are expected to keep their capital expenditure (capex) limited to last year’s levels, focusing mainly on compliance with the new Stage-V norms and addressing production bottlenecks.

Impact of Price Increases and New Norms

Despite the lower sales, revenue in the construction equipment sector is projected to grow due to a rise in product prices. This price increase is linked to the upcoming implementation of Stage-V emission norms for construction vehicles, which will take effect from January 2025. New emission and safety standards are also expected to push prices higher.

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CMV360 Says

The slowdown in India’s construction equipment sector signals a challenging period due to reduced road construction and higher costs. However, the sector’s revenue growth driven by price hikes and stable profitability shows resilience. Government infrastructure projects will continue to support the industry in the long run, but the near-term outlook remains uncertain.