According to a CRISIL research report, the construction equipment (CE) sales volume has fallen 70 per cent year-on-year in the first quarter and utilisation nearly halved due to outbreak of COVID-19 pandemic and subsequent lockdown in the country which resulted in halting of construction activities and reverse migration of construction workers. Poor performance in the first quarter of the current year follows a 20 per cent volume decline in FY20.
The second half of the FY21 could see more whirr and hum, says the report. Volume could retract by a third year-on-year in FY21, especially since public spending would be diverted towards healthcare and public welfare, the report said. Diversion of public spending would mean lower investment in infrastructure and hence slack demand for CE.
The report estimates that the excavators (23 per cent of total sales) may see a sharper volume de-growth. Backhoe loaders (45 per cent) may be relatively less impacted owing to their lower cost and multi-functionality. Crane volume (9 per cent) is expected to dip with slowdown in the cement, power and auto sectors. Compactor volume (4 per cent) will compact with 10-13 per cent decline in highway construction year-on-year in FY21.
A drop in utilisation would translate to higher fixed costs (25-30 per cent of the total), driving margins down. But a 6-7 per cent decline in steel prices might offer some cushion.