The infrastructure segment and sales figures for construction equipment have witnessed a major slowdown in 2012. On a calendar year basis, the market has dipped by 10-15 per cent, primarily on account of slowdown in allocation of new contracts, various statutory clearances on execution side, funds flow, governance and environmental issues in mining segment and real estate slowdown. The interest rates are at an all-time high and have not softened over a long time. Devaluation of currency has certainly put strain on contractors and financial institutions who had partially hedged ECBs (has eased lately with Rupee strengthening). Furthermore, it has also impacted many OEMs who had lower indigenisation and high imported parts dependence. The industry being down and competition being fierce, it hasn't been possible to pass on the cost to buyers and hence, has added stress on the profitability of many such OEMs. The economic slowdown in the leading world economies has only added to the woes of the segment.
In fact, the backhoe loaders and excavators contribute nearly 60 per cent to the total equipment market in India. For the first quarter of the current financial year, backhoe loaders have grown by 3 per cent and excavators have grown by 9 per cent. However, the same have declined by 7 per cent and 14 per cent in July 2012; and by 16 per cent and 23 per cent in August 2012 on YOY basis. The numbers for September 2012 are expected to be in the same range. Based on the current trends, the CE market is expected to remain flat for the current year. Despite the current challenges, Off-Highway Research is positive about the long term prospects of the construction equipment market. Off-Highway Research forecasts an increase of sales figures of earthmoving equipment of 16 per cent in 2013, 9 per cent in 2014, 11 per cent in 2015 and 10 per cent in 2016.
The government has recently initiated a slew of reforms to stimulate growth. There is an added push in clearance of key infra projects. The Ministry of Forest and Environment (MoEF ) has recently cleared about 80 files relating to road projects, out of 347 road projects which are stuck. The highways ministry has sought some relaxation in issuance of green clearances for NH projects to hasten construction work. But the effect may take some time to percolate. While the government is expected to roll out more reforms soon, the key issue is implementation on the ground. If policy issues are addressed and initiatives are implemented, it will give a boost to the segment and equipment financing in India.