CE industry to de-grow by 15-20 per cent in CY2020
Giving more insights on the industry scenario, Pavethra Ponniah, VP and Sector Head, ICRA says, ?Apart from the impact of the lockdown during March to May 2020, Covid-19 has crippled several industries and eroded livelihoods. Weakness in government revenues streams, more so at the states; redirected government support to healthcare, possibly at the cost of all other capital spends; the need for structural changes incorporating social distancing in several industries like construction; movement of labour and material; and the cost of restarting the economy ? all these thwart the ability to make forecasts for sectors intrinsically linked to the underlying economy. Unforeseen headwinds will be many in the coming months.?
Major findings of the dealers? survey:
- During FY2020, 43 per cent of the respondents witnessed volume de-growth of >25 per cent. Dealers in few states like Karnataka and Bihar reported volume growth between -5 to 5 per cent.
- Tough financing environment and liquidity strain in the market made it difficult for majority of the dealers to secure funding, thereby impacting sales to some extent during FY2020.
- Majority of the respondents indicated that funds flow from the government was weak. While Central Government payment was flowing, payments from state government was stuck which in turn impacted CE demand.
- As for rental demand, 50 per cent of the respondents said it was in line with previous years while ~30 per cent felt otherwise which impacted fresh CE buying to a certain extent.
- Sales during March 2020 was severely impacted by the Covid-19 outbreak and the ensuing lockdown, ~83 per cent of the respondents witnessed volume de-growth of more than 60 per cent (in some cases as much as 80-90 per cent).
- Typically, March of every fiscal is the best month during which the CE sales witnesses a surge in volumes, but not in FY2020, leading to relatively higher inventory holding.
- Currently, 85 per cent of the respondents hold more than one month of inventory which is adding to higher interest costs for Q1FY2021.
- Despite tight conditions, dealers received timely funds from financiers for sales during February and March 2020, even while the lockdown impacted sales during March 2020.
- 71 per cent of the respondents expect demand to revive during Q3 FY2021, after Q2 FY2021 which is typically a lean period for the industry on account of monsoons.
- The extent of volume de-growth during FY2021 remains uncertain given current market conditions; 50 per cent respondents expect volumes to decline by 15-25 per cent while 29 per cent expect volumes to remain flattish during FY2021.
- Emission norm change (on production of engines >50 HP) to TREM IV standards for backhoe loaders and wheeled loaders is scheduled for October 2020. More than 70 per cent respondents expect the emission norm changes to be implemented as scheduled.
- More than 85 per cent respondents expect cost of the equipment to increase by 5-10 per cent given the upfront investments incurred by OEMs to implement emission norm changes in wheeled loaders and backhoe loaders.
- As for the outlook going forward, Ponniah adds, ?Belying hopes of a recovery in CE demand, supported by stepped up infrastructure spend, the Covid-19 pandemic has led to significant global retrenchment in economic activity during the current year. Demand will remain dependent on the pandemic being contained, trend in funds flow from the government, pace of project awards and availability of transportation (for raw materials) and labour at project sites.?