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ICRA's latest report reveals that the Indian Mining and Construction Equipment (MCE) industry experienced muted volume growth of 3 per cent YoY in 11 months of FY2025. This is a notable deceleration compared to the 26 per cent growth rates in both FY2024 and FY2023. The slowdown is attributed to reduced domestic project award activity and execution momentum in the first half of the fiscal year, influenced by the General Elections, followed by extended monsoon-related impediments. The export momentum also witnessed a tapering during the same period. While a recovery began in Q3 FY2025, overall industry volumes are expected to remain largely flat, with a modest 2 to 3 per cent growth in FY2025. Within the domestic market, earthmoving equipment, the dominant sub-segment, saw a 5 per cent YoY growth, contrasting with declines in most other sub-segments in 11M FY2025. In exports, concrete and road equipment showed remarkable growth, with increases of 133 per cent and 122 per cent YoY, respectively. However, overall export volume growth moderated to 7 per cent YoY, following a 49 per cent jump in FY2024. ICRA anticipates a further year of modest YoY growth of 2 to 5 per cent for MCE industry volumes in FY2026. This projection is set against a high base, with sales exceeding 1 lakh units for three consecutive years. The sector's reliance on financing, with 85 to 90 per cent of MCEs sold in India being financed, highlights the impact of tight liquidity with Non-Banking Financial Companies (NBFCs). This situation may affect disbursements and lower loan-to-value ratios, particularly for first-time buyers, posing a challenge for the industry in the near term. The challenge is likely to be exacerbated by price escalations resulting from emission norm changes and the incorporation of new safety features, which will be fully implemented starting July 2025. Despite potential dampening effects on demand due to price hikes and a constrained financing environment, the industry's stable outlook is supported by expectations of continued government emphasis on infrastructure development and favourable commodity prices. Industry performance in FY2025 surpassed initial expectations, even with flat volumes. Given the industry's cyclical nature and a high base, with over 1 lakh units sold annually for the past three years, FY2026 volumes are projected to grow moderately by 2 to 5 per cent. There is potential for upside in these estimates, contingent on a timely recovery in domestic project awarding activity, accelerated project execution, and a surge in exports. ICRA forecasts that the credit metrics of the domestic MCE industry will remain stable in FY2026, with revenue growth of 8 to 10 per cent YoY. However, profitability margins are expected to contract by 50-100 bps, driven by higher costs (estimated to increase by 12 to 15 per cent) due to regulatory changes and the staggered pass-through of these costs to customers. Mid-sized entities with relatively leveraged balance sheets may experience some pressure on coverage metrics. The elevated working capital intensity as of March 2025, due to increased inventory holding during the emission norms transition, is expected to moderate.