Icra downgrades construction equipment sector rating

New Delhi: Ratings agency Icra on Thursday revised the outlook on construction equipment (CE) sector to 'negative', citing sharp drop in unit sales amidst slowing economic growth.

Icra said it has revised the outlook on the sector following a sharp correction in unit sales amidst slowing economic growth and infrastructure investments, both by public and private sector, and tight liquidity environment.

"Demand headwinds are likely to continue in the near-term unless there is a course correction by the public sector which leads to sizeable scale up in infrastructure investments directly and through enabling policy measures, thereby triggering fresh equipment buying," Icra said in a statement.

The sharp volume contraction would exert pressure on earnings and overall credit profile of CE OEMs (original equipment manufacturers), it added.

"Slow movement in award of road projects during the past several quarters, delays in payment to contractors, continued land acquisition issues and overall tightness in the financing environment has led to a contraction in fresh equipment buying since early CY2019," Icra Vice President & Sector Head - Corporate Ratings Pavethra Ponniah said.

In 2018, the construction equipment industry registered a growth of around 30 per cent in unit terms, driven by strong growth in all components, particularly backhoes and excavators.

However, growth started contracting in early 2019 in the run up to the general elections.

Till August 2019, industry volumes have contracted by 16 per cent in the key product category of backhoe, excavators and wheeled loaders, Icra said.