Full recovery in construction equipment sales seen in two years: JCB India2 min read . Updated: 05 Aug 2020, 04:13 PM IST
- Demand for construction equipment is a barometer for construction and infrastructure activities in an economy
- JCB India, country's largest manufacturer of construction equipment and related machines, had sold more than 43,000 machines in CY2018
MUMBAI : With the covid-19 pandemic and nationwide lockdown significantly reducing new capital expenditure projects by public and private sector, the demand for machines used in the construction sector is seen two years away from its peak in CY2018, Subir Chowdhury, managing director and chief executive officer at JCB India Ltd told Mint in an interview.
“CY2022 will be the year when we may match the CY2018 levels assuming that the geopolitical instability is sorted, the pandemic is over and the vaccines are made," he said.
JCB India, country's largest manufacturer of construction equipment and related machines such as backhoe loaders, excavators, compactors among others, had sold more than 43,000 machines in CY2018, which was its best year ever.
According to CMIE data, aggregate new projects announced in December 2019 and March 2020 quarters stood at ₹5.24 trillion and ₹3.49 trillion respectively. This fell to ₹0.59 trillion during the June quarter, indicating a sharp decline in the investments made in the infrastructure projects during the period due to the pandemic.
Demand for construction equipment is a barometer for construction and infrastructure activities in an economy.
“The demand for these machines had grown 40% y-o-y in CY2018 on the back of robust government spending on infrastructure projects. In CY2019, the volumes declined 15% and H1CY20 has seen 37% YoY drop in demand for these machines," said Chowdhury.
However, with the government lifting the nationwide lockdown, in the last two months, JCB India has seen a gradual recovery in demand driven by flagship government programs.
“We are seeing significant recovery. This is being driven by increased government spending in construction activities under Pradhan Mantri Gram Sadak Yojna (PMGSY) and Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGA)," Chowdhury said, adding that availability of labour at their native places is also contributing to this.
The managing director of the company said that after losing April and May to the lockdown, the utilization of JCB machines deployed on the field has seen a V-shape recovery during June-July months.
“We have about 90,000 machines on the field pan India. They are digitally connected so that we can monitor their utilization levels. We have recorded a V-shape recovery during the June-July period. In July, the machine utilization level was the same as last year," Chowdhury said.
On the back of this metric, Chowdhury expects that the demand for backhoe loaders, the commonly used JCB machine on construction sites, will see recovery before the other more expensive machines such as excavators.
The company estimates that H2CY20 would be better than H1 but the December quarter this year would still be about 15% below last year.
Challenges around liquidity transmission for contractors, manpower availability at the construction sites away from rural pockets are expected to keep recovery in the slow lane in the coming months.
“I believe that the government should be able to workout investments in infrastructure by Oct-Nov and this would start off the cycle. But this cycle takes time to move up through the value chain. So Jan-March 2021 could be a strong positive quarter," Chowdhury said.