The economic slowdown seen across various segments of the Indian industry has extended its presence even in the domestic construction equipment (CE) industry.
The CE market, which was growing at over 30 per cent annually for the last seven years, has for the time witnessed slowdown in the second half of the current financial year and is likely to see a drop of 30 per cent in overall sales during the third quarter of the year.
According to J P Nayak, member of the board and president, machinery and industrial products, L&T, the CE business is affected because of the general economic slowdown and particularly the shrinking real estate sector.
During 2007-08, the construction equipment business in the country witnessed 30 per cent growth to touch a size of $3.1 billion compared to the previous year. However, during the second half of current financial year, the CE industry is likely to shrink by 30 per cent, he told reporters on the sidelines of a CII conclave, here today.
The excavator and backhoe loader segments of the CE industry have seen a drop in demand by 40 per cent and 60 per cent during the October-December 2008 period, he said. As regards to L&T’s CE business, Nayak said, “We are not affected much so far, because we work on a project basis and only 18 per cent of our total sales come from product and services business and the balance 82 per cent is from projects. So far, there is no decline in projects.
Our overall sales will not come down for the year and we stand by our revenue guidance for the year.” He, however, expressed confidence that the economy will bounce back in 2009.
Earlier, delivering a key note address at the Indian Construction Equipment Industry Conclave, organised by Confederation of Indian Industry (CII), Nayak said the liquidity for the construction equipment dried up due to the stock market collapse and consequent redemption pressure on mutual funds, a primary source of funds to NBFCs.
“Bank finances stopped as overall confidence levels came down. Payments to equipment hirers, contractors and sub contractors were not made and companies defaulted in EMI payments drove down the old equipment prices. This led to NBFCs slow down their lending to CEs,” he said.
Until the normalcy is restored, the public sector banks must be mandated to allocate a fixed per cent of their funds for CE financing.
The government should take steps to set up a National CE Finance Bank for focused core sector funding for CE at 8-8.5 per cent interest, Nayak suggested.
Today's conclave also witnessed the launch of Excon 2009, the fifth Indian Construction Equipment and Construction Technology Trade Fair to be held between November 25-29, 2009 at Bangalore International Exhibition Centre.
