Localisation a Rs 25k-cr potential for MCE industry

Given its vision to become a $7-trn economy by 2030 and the multiplier effect of infrastructure development on economic growth, the government is expected to keep prioritising infrastructure investment over the coming years, within the constraints of fiscal consolidation - Ritu Goswami, sector head (corporate ratings), ICRA

Indigenization

♦ It’ll not only shield the supply chain from geopolitical risks, but improve operational efficiency

♦ It also helps create more job opportunities

♦ Indian MCE industry grew 5% in volumes in Q1

♦ It imports 50% of its components

New Delhi: As the government prioritises the infrastructure investments, component localisation in the mining and construction equipment (MCE) industry could offer Rs25,000 crore annual opportunity to construction equipment vendors by FY30, a report showed on Tuesday.

Led by components such as undercarriages and precision hydraulics, rating agency ICRA foresees a jump in localisation levels from 50 per cent to over 70 per cent in the next 5-7 years. The Indian mining and construction equipment (MCE) industry is the third largest in the world in terms of volumes sold.

However, it imports nearly 50 per cent of its component requirement (by value) from suppliers based out of China, Japan, and South Korea, among others.Components like hydraulics, undercarriages, and high-tech electronics like electronic control units (ECUs), sensors, telematics, etc are generally imported.

Ritu Goswami, Sector Head-Corporate Ratings, ICRA, said:“Given its vision to become a $7 trillion economy by 2030 and the multiplier effect of infrastructure development on economic growth, the government is expected to keep prioritising infrastructure investment over the coming years, within the constraints of fiscal consolidation.”

While the industry has a domestic manufacturing base with the indigenisation levels varying across the equipment categories, it has high import dependence and provides significant scope for development.

“Improved localisation will not only shield the supply chain from geopolitical risks and improve operational efficiency but also help create more job opportunities,” said Goswami.The Indian MCE industry reported a 5 per cent growth year-on-year (YoY) in volumes in the April-June quarter.

Factors supportive of increased industry localisation include increasing domestic demand (CAGR of 12 per cent over the last decade -- FY2015-FY2024) and the PLI scheme for complementary sectors like specialty steel and auto components, in addition to the shifting geo-political dynamics with the China+1 policy being adopted by the global OEMs to diversify their supply chains.At a macro level, the Centre has been working towards improving the ease of doing business and creating a robust infrastructure to attract investment and improve the overall competitiveness of the domestic manufacturing industry.

“With the potential of becoming a Rs2.1 lakh crore market in annual revenues by FY2030, this increased localisation share would translate into the incremental business opportunity of over Rs. 25,000 crore for the domestic MCE vendors,” said Goswami.