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Higher infra spend ups 'Construction Equipment' volumes
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SME Times News Bureau | 06 Mar, 2021
Heightened focus on infrastructure spend, particularly in the road
infrastructure segment has led to a sharp scale up in 'Construction
Equipment' volumes since July 2020, said ratings agency ICRA.
Accordingly, the agency revised its outlook on the CE sector to 'Stable' from 'Negative' following a strong ramp up in volumes.
ICRA
cited heightened focus on infrastructure spend, particularly in the
road infrastructure segment has led to a sharp scale up in volumes since
July 2020.
As per the agency, factors such as sharp increase in
the awarding and execution pace of road construction; increased focus on
rural infrastructure; strong rural volume off-take for equipment on the
back of second consecutive good monsoon; improving demand from railway
and mining segments and the regular payment flow from the government to
contractors has supported healthy revival in industry volumes over the
last few months.
Besides, demand has also been supported by
steady inflows from the Central government on infrastructure spend,
particularly on roads, even though state infrastructure expenditure has
been severely curtailed and diverted to the pandemic management.
According
to Pavethra Ponniah, Vice President and Sector Head, ICRA: "Following a
sharp correction in unit sales in Q1 FY2021, CE OEM volumes have
recovered sharply since, supporting industry credit profile."
"Raw
material price hikes, particularly for steel, have however had an
impact on profit margins. OEMs have and are expected to take further
price hikes to pass on these cost pressures."
However, the agency
pointed out that continued limited fiscal bandwidth with state
governments to invest in infrastructure and the price hikes following
the upcoming emission norm change in April 2022 as two critical demand
headwinds in the coming quarters.
"State governments are key
contributors to the infrastructure activity in the country. Modest
growth in SGST collections, delays in receipt of GST compensation, and
the reduction in the central tax devolution to the states in FY2020
below the level budgeted by the GoI, have complicated the liquidity
management of the state governments," added Pavethra.
"This could potentially derail the equipment industry, as it slows down infrastructure investment."
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