Government's Re-election Push Impacts Domestic Mining and Construction Industry, Says ICRA

62
1
Government's Re-election Push Impacts Domestic Mining and Construction Industry, Says ICRA

The efforts made by the government to prioritize project execution for re-election purposes significantly boosted the demand in the domestic mining and construction industry over the past two years. This increased demand led to a period of substantial growth, with a 26% increase in FY'23 and a 24% increase in FY'24 in the industry's volumes. The positive trend, however, is predicted to reverse as the Rating agency ICRA foresees a 12-15% year-on-year decline in volumes for the upcoming financial year, translating to around 114,000-118,000 units.

ICRA's statement highlighted that the drop in growth is expected to be driven by a slowdown in new project award activities during Q4 of FY'24 and Q1 of FY'25. This slowdown is influenced by the Model Code of Conduct that will be in effect during the Parliamentary Elections in April-May 2024, until the results are announced on June 4, 2024. As a result of these factors, the aggregate revenues and operating margins of ICRA's sample set companies are anticipated to contract by 9-12% and 100-150 basis points, respectively, in FY2025.

Ritu Goswami, the Sector Head of Corporate Ratings at ICRA, emphasized that the expected decline in growth for FY'25 will particularly impact the first half of the financial year. The disruption in project award activities for two consecutive quarters, along with the effects of Lok Sabha elections and monsoon-related challenges on construction activities, are likely to cause a moderation in sales during this period.