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The Indian mining and construction
equipment industry
was severely hit by the
economic slowdown, weak
sentiments across user industries
and tight liquidity conditions in
2008-09, resulting in a sharp 15-
30 per cent drop in demand across
product segments.
The cumulative negative impact
across industrial and infrastructure
investments resulted in a
sharp decline in Indian MCE volumes
in Q3 2008-09, ICRA Ltd, an
associate of Moody's Investors
Service, observed in its latest
report on Indian Mining and Construction
Equipment Industry:
Strong growth prospects despite
competitive pressures.
While government-funded
infrastructure projects largely
remained on track even during
this downturn, a number of privately
funded projects suffered
due to insufficient credit and a
sharp deterioration in the investment
environment. In the mining
industry, the metal mining
segment (largely under the aegis
of private companies) was affected
by a sharp fall in commodity
prices while coal mining (largely
undertaken by the Government
of India) supported demand to
some extent. Growth in governmental
segments of mining and
roads, which are relatively more
mechanised and thereby use
more of MCE, supported growth
during the past few quarters.
Indian MCE volumes started
picking up in November 2009
and maintained a healthy
growth over the past four
months. The IIP index April-
February 2010 posted a growth
of 10.1 per cent against 3.0 per
cent in the corresponding period
of the previous year. Infrastructure
spending by the government,
towards schemes like
Pradha Mantri Gram Yojna and
preparation for the 2010 Commonwealth
Games, has been a
strong demand driver, especially
for the northern part of the country.
The southern part, which
was hit by fall in iron ore and
granite mining activity, also
showed some signs of revival.
However, the demand from the
real estate segment (which
impacts concreting equipment)
continues to be relatively weak,
particularly in the commercial
real estate segment. Nevertheless,
the longer term prospects
for the segment remain healthy,
with strong demand expected
from the housing segment.
Positive outlook
The mining and construction
equipment industry is cyclical,
with the long-term demand
strongly correlated to the health
of the underlying economy and
infrastructure investment. The
MCE sector is particularly affected
by macroeconomic factors like
investments in infrastructure,
housing demand, real estate
prices, employment rates and
commodity prices.
As the purchase of real estate
and construction equipment
industry is largely debt-funded
(about 85 per cent of the MCE
industry purchase is financed),
timely availability of credit at
favourable terms and interest
rates also remains a strong
industry driver.
Over the past four months, the
industry has been on an upturn
supported by increased financing
availability; step-up in infrastructural
investments and pick-up in
demand for commodities globally.
Large proposed investment over
the next several years in infrastructure
(ports, airports, roads)
has the potential to sustain the
growing demand for construction
equipment. The 11th Plan commission
(2007-12) envisages the
need for an infrastructure investment
of over $155 billion for
development of roads, bridges,
railways, ports and airports, and
over $2 billion in mining.
According to the Economic
Survey of 2009-10, the ministry
of road transport and highways
has set a target of completion of
20 km of national highways per
day, translating into over 35,000
km during the period from 2008-
09 to 2013-14. National Highways
Authority of India has formulated
closely monitored work
plans for awarding 12,000 km of
projects each during the years
2009-10 and 2010-11.
The Special Accelerated Road
Development Programme in the
Northeastern Region (SARDPNE)
envisages two and four-laning
of about 5,184 km of national
highways, and two-laning and
improvement of about 4,756 km
of state roads.
Since inception in December
2005 and until December 2009,
515 projects across 31 states at a
cost of Rs 580 billion have been
sanctioned for urban infrastructure
development under the
Jawaharlal Nehru Urban
Renewal Mission. These are but
a few of the large infrastructure
initiatives that are currently
underway in the country.
According to the ICRA report,
the long-term demand drivers for
the construction equipment
industry are relatively low levels
of mechanisation and penetration
of equipment in the construction
industry; proposed
heavy investment in infrastructure;
and increasing population
and urbanisation. The demand
for mining equipment is expected
to grow in line with the
demand for metals and energy.
Low-cost countries like India and
China also stand to gain from the
potential for export of components,
equipment and engineering
and designing services-an
area where China has already
made significant inroads.
Some of the areas that need to
be addressed during this growth
phase include introduction of
customised products for the
Indian markets; setting up of a
viable and efficient aftermarket
network; an equipment rental
and used-equipment market;
and training of manpower to
operate the equipment.
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