Mining and Construction Equipment Sector Likely to Grow by 13-17% in 2017: ICRA

Mumbai: With the demand for mining and construction equipment (MCE) continues to grow mainly due to the increase in infrastructure spends, the sector is likely to grow by 13-17 percent during 2017, says ICRA.

According to the rating agency, the demand for MCE grew by over 35 percent during CY2016, overcoming four consecutive years of weak demand, giving a boost to the sector which is likely to grow by 13-17 percent in 2017.

It, however, noted that the industry growth this year has been somewhat curtailed despite strong growth during January-February 2017 as the markets were temporarily hit by emission related ambiguity and GST during April and July 2017, respectively.

It further expects the sector's growth to lower in 2018 with it growing by 8-10 percent. For 2019, ICRA said that industry growth may slow down to around 4 per cent due to Union elections and high base effects.

"Infrastructure investments in roads, irrigation, railways and metro drove demand whereas coal and iron ore mining, power, oil and gas and real estate tampered demand," ICRA Senior Group Vice President, Corporate Sector ratings Subrata Ray said.

He said the improvement in average per day execution of NHAI projects to 10.33 km in fourth quarter of financial year 2017 despite demonetisation and investments by Indian Railways helped in the growth in demand for MCE.

"The sector outlook is improving given the 20 percent plus growth witnessed in the construction equipment industry during Q1CY2017 mainly due to higher infrastructure spend, particularly in roads, raised equipment utilisation and subsequently demand for new equipment which led to a sharp reduction in the delinquency data for CE financiers," Ray said.

On the flip side focus on renewable energy and high coal inventory impacted equipment demand both in power plants and mines, the outlook on the same continues to be negative. Though iron ore production has grown at a healthy rate during FY2017, demand from the domestic steel industry has remained subdued.

"This is expected to keep demand from the iron ore mining segment muted in CY2017. Demand from the real estate segment, however, continues to be weak," ICRA noted.