Road CoS Hit Fast Lane on Govt Spend

Construction equipment sector is on a roll following the massive govt push on roads through projects like Bharatmala for highway construction and PMGSY, which aims to improve rural connectivity. The investment in road sector is expecting yearly growth of 20% over the coming years, triggering demand for construction machinery and vehicles. Investment cycle has started with road sector construction equipment industry to grow at a compounded annual growth rate of 20%-plus. In Aug & Sep this year, the construction equipment industry grew 25-30% and the momentum is expected to continue for the rest of this fiscal. The Union cabinet recently cleared Rs 7 lakh Cr project to develop 83,677 km of highways in 5 years, which includes the Bharatmala project, thus providing much-needed booster dose to the road industry. Under the PMGSY, a spending of Rs 88,185 Cr is envisaged by the central and state govts to construct 109,302 km of rural roads over the next 3 years. In addition, 5,411 km roads worth Rs 11,725 crore will undergo upgradation and new roads in 44 districts are to be completed by 2019-20. Rating firm Crisil estimates that India needs an expected spend of around Rs 3,000 crore per day over the next 5 years for building Infra. All this would translate into robust incomes and profits for construction companies in roads and other sectors, many of which are listed such as Ashoka Buildcon, IRB Infra, Sadbhav Engineering, PNC Infratech, among others.
The EPC contract CoS in the infra space have started doing much better. They are getting contracts for projects like roads and irrigation. Govt has committed huge capital outlay in developing rail and highway networks besides launching mega affordable housing projects. Given these facts, it is absolutely essential for the earthmoving and construction equipment industry to collaborate with all stakeholders including govt agencies.