While CRISIL Research witnessed a muted impact of the lockdown in fiscal 2020, the entire brunt will be felt in
fiscal 2021. Given this, CE volumes declined by ~20% in fiscal 2020 with the fourth quarter being a complete
washout. CRISIL Research expect volumes to plunge further by 21-23% in fiscal 2021. Further, government funds
will be diverted towards healthcare facilities, resulting in lower investments in the infrastructure segment
translating to low demand for equipment. In fiscal 2022, volumes are expected to increase 14-16% on two years
of lower base effect.

CE domestic sales outlook FY 2021- FY 2022

wy 100
g 75
& 62 60 ea
= 60 47
2
§ 40
3
2 2
0
FY18 FY19 FY20 FY21E FY22P
= Backhoe Loaders mw Excavator = Wheeled Loader = Compaction equipment
= Motor graders Skid Steer loaders m Bull Dozers Total

Source: CRISIL Research

Rental and leasing business to grow in the long term

The equipment rental and leasing business in India is small, compared with the developed markets. However, it
possesses high growth potential and an uptrend has been visible over past few years. Earlier, rented equipment
were only used for complex projects such as wind energy, thermal power, port construction, and mega industrial
projects. However, interactions with industry experts indicate that now rented equipment is used even for smaller
projects. CRISIL Research expect these projects to aid equipment sales. This comes with the caveat that
the industry is still at a very nascent stage and has a long way to go in order to become organized as in the
developed markets of Europe and the US.

The construction equipment leasing business in India lost momentum on account of the multiple taxes levied on
equipment from 2001. Since then, the industry has shifted towards the financial lending model from equipment
leasing, as the former provided tax benefits. However, with GST coming into play, the leasing business is expected
to pick up.

Disbursements dip, NPAs rise in CE industry

The decline in CE demand is reflected in the quantum of loans disbursed by equipment finance companies. Close
to 85-90% of the equipment are financed with institutional credit whereas cash purchases account for the rest.
Also, the ratio between new and used equipment financing is 70:30.

NBFCs saw a decline in disbursements in fiscal 2020. For SREI Equipment Finance, one of the major equipment
financiers in the country, disbursements dipped by 21% in the first half of fiscal 2020, compared with the first
half of 2019.

Gross non-performing assets (GNPAs) of equipment financiers stood at 4.6% (as of September 2019), against
3.3% (as of September 2018). Equipment financing has seen an upswing since October 2015, primarily driven by
the roads sector. Going further, demand is expected mainly from road and mining equipment.

AUTOMOTIVE COMPONENTS INDUSTRY IN INDIA.

The Indian auto components industry clocked a CAGR of 6% in production over fiscals 2015 to 2020, led by
growth in replacement and exports demand. Domestic demand is forecast to log a CAGR of 6-8%, driven by
demand from OEM at 7-9%, whereas exports are set to grow at 3-5% over fiscals 2020 to 2024.

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