Rising steel, bitumen costs may taper construction equipment growth in FY27: ICEMA Vice President

A Reassessed Outlook

India's construction equipment industry, which began the financial year with expectations of robust double-digit growth, now foresees a more modest single-digit expansion, according to Shalabh Chaturvedi, Vice President of the Indian Construction Equipment Manufacturers' Association (ICEMA) and Managing Director, India and SAARC, CASE Construction Equipment.

"At the beginning of the financial year, the expectation was for double-digit growth. Considering the developments since then, we are looking at a more moderate, single-digit kind of growth. It is still growth, nonetheless," Chaturvedi told PTI.

The reassessment follows an already subdued FY26. Construction equipment sales declined approximately 2% to 136,995 units during the year, according to ICEMA, as domestic sales fell nearly 7%. A 32% increase in exports partly cushioned the slowdown.

In May, ICEMA had projected around 7% growth for FY27, betting on the Centre's Rs 12.2 lakh crore capital expenditure programme and stronger road activity. However, the sector's trajectory has been complicated by rising input costs and execution challenges.

Rising Costs Strain Project Economics

Chaturvedi highlighted that escalation in input costs has emerged as a significant challenge as the financial year progressed. Steel and bitumen, critical inputs for construction, have seen sharp price increases.

According to Chaturvedi, bitumen—a petroleum-derived material used extensively in road surfacing—climbed from roughly Rs 40,000-45,000 per tonne to nearly Rs 80,000 per tonne before easing to about Rs 75,000 in July, remaining substantially above earlier levels.

Steel costs have also moved higher. ICRA reported that domestic hot-rolled coil prices rose about 14% sequentially to Rs 57,700 a tonne by the end of March. Developments in West Asia disrupted supply chains and contributed to increases in prices of several key commodities and construction inputs.

The sharp increase in construction input costs has affected project economics, particularly for contractors who had bid for projects before the escalation. This has impacted the pace of execution in parts of the road construction sector, which remains one of the most important demand drivers for construction equipment in India.

Government and Industry Measures

The cost pressure has been significant enough to prompt government intervention in highway contracts. In April, the Ministry of Road Transport and Highways introduced a temporary cost-escalation relief mechanism for national highway projects, citing higher fuel, construction-material and logistics costs arising from the global situation. Later, the ministry changed highway contract rules to account for the sharp rise in construction costs.

Regulatory and Sectoral Challenges

The industry also faces regulatory hurdles. The implementation of CEV Stage V emission norms from January 2025 increased equipment costs, while higher borrowing costs structured financing for buyers.

Chaturvedi pointed to other execution challenges: the Jal Jeevan Mission slowed amid moderated fund disbursements, and delays in contractor payments have affected liquidity across parts of the infrastructure ecosystem.

Mixed Signals in Company Results

Company-level results in the first quarter of FY27 present a mixed picture. Action Construction Equipment reported approximately 20% revenue growth. Escorts Kubota's construction-equipment volumes rose 27% and segment revenue 39%, though its segment margin slipped slightly.

Among road contractors, KNR Constructions reported a year-on-year decline of about 4% in revenue to around Rs 588 crore, and H.G. Infra Engineering saw a 26% drop to Rs 1,101 crore. In contrast, PNC Infratech's standalone revenue rose approximately 34% to Rs 1,518 crore.

Industry Projections and Market Context

Despite short-term headwinds, the longer-term market fundamentals remain strong. India is the world's third-largest construction equipment market, projected to reach USD 14.76 billion by 2030. The sector is expected to expand at a compound annual growth rate of 8.3% through that year.

ICRA, in a March note, projected construction-equipment industry growth of only 3-5% in FY27, and expects construction companies' revenues to grow 6-8% during the year. Overall, construction-sector growth is forecast to ease to 6.5% in FY27 from 7.4% a year earlier.

Chaturvedi remained cautiously optimistic, emphasizing that albeit moderated, the industry will still register growth in the current financial year.