Mining and CE volumes down 12-15% in FY25!

CRA expects domestic MCE industry volumes to decline in FY2025 after two consecutive years of strong growth, i.e. 26% in fiscal year 2023 and 24% in fiscal year 2024 AH. This growth trend reversal will be driven by a slowdown in new project award activity in Q4 FY2024 and Q1 FY2025 as the Model Code of Conduct remains in place during the parliamentary elections from April to May 2024 (until the results are announced). . On June 4, 2024). In addition, overall revenues of companies in the ICRA sample set are expected to contract by 9% to 12% and operating margins by 100 to 150 basis points in fiscal 2025.

Ritu Goswami, Corporate Ratings Sector Head, ICRA He said: “The government’s pre-election pressure to implement projects has created strong demand momentum for the MCE industry in the last two years. However, with the potential disruption in project award activity for two consecutive quarters (Q4 FY24 and Q1 FY20) 2025 e) Amid parliamentary elections and monsoon-related impact on project activities, construction in the second quarter and first half of FY2025 is expected to witness a moderation in sales while volumes will increase in the second half, given the recovery in new project awards from the third quarter Supported in part by advance purchases due to the transition of the CEV-V emission standard in January 2025 (postponed since April 2024), ICRA expects FY2025 to see a year-on-year decline of 12-15% (equivalent to volumes of 1.14-1.18 lakh units). . A similar trend was also observed during previous election periods (FY15 and FY20), with volumes contracting year-on-year in these years.

While the short-term domestic demand environment for MCE remains challenging for the industry, the long-term outlook remains long The extent is sound, given the government's continued focus on infrastructure development (as emphasized in the Interim Budget for FY 2024-25). “Increasing mining targets for coal and iron ore (to reduce dependence on imports and meet the needs of a growing economy) also bodes well for domestic market demand for MCE, which accounts for 90% of volumes sold by national OEMs,” he added. . Goswami.

On financial metrics, with an expected decline in volumes in FY2025, total revenues and operating margins of companies in the ICRA sample set are expected to shrink by between 9% and 12% and between 100 and 12%. 150%. points, respectively, in fiscal year 2025. Relatively stable raw material prices are expected to support the cost structure, although any increase in logistics cost (given the high reliance on imports and the current Red Sea crisis) and/or supply chain disruptions pose Downside risk to estimates. ICRA expects good order books and execution momentum by EPC operators to support equipment utilization and keep rental yields stable year-on-year.

“OEMs headquartered outside India (ICRA sample) are expected to incur capital expenditure of Rs 1,400-1,500 crore during FY25 for decongestion, product development initiatives (such as CEV-compliant equipment) V, propulsion systems powered by alternative fuels, etc.) and localization initiatives; however, overall capital spending is likely to remain modest for most industry participants in the medium term while operating margins are expected to decline due to shortages Absorbing the fixed cost, ICRA expects the credit profile of industry participants to remain stable in FY2025, on the back of low leverage and comfortable liquidity for the majority of industry participants.”