Poor commercial vehicle sales point to fundamental problems with economy
The expected lift to sales of medium and heavy commercial vehicles (M&HCVs) before new emission norms take effect hasn’t happened. Both industry and analysts are now reconciled to flat or low single-digit growth figures for the March quarter as opposed to the earlier forecast of 15-20% year-on-year (y-o-y) growth.
The initial heady estimates were based on the assumption that there would be large-scale purchases of trucks in the March quarter, as compliance with the new BS-IV emission norms that take effect in April will make them costlier by 5-8%.
There were other reasons for the optimism. The March quarter is usually a strong one. The March 2015 and March 2016 quarter sales were up 31% and 30% y-o-y, respectively, which analysts perhaps extrapolated to the March 2017 quarter too. Also, there was hope of a sales trigger from pent-up demand post- demonetization, which had punctured sales in November and December.
However, according to the Society of Indian Automobile Manufacturers (Siam), domestic M&HCV sales contracted 1% in January, with market leader Tata Motors Ltd, which commands almost half the share of the market, reporting a y-o-y decline of 6%. Ashok Leyland Ltd did buck the trend, however. Although Siam data for February is not out yet, company information shows Tata Motors’ M&HCV sales fell by 1%. Eicher Motors Ltd, which has a small presence in the sector, too did not see any sales jump due to the pre-buying effect.
What has changed? Perhaps the high vehicle inventory both with dealers and companies, following the severe sales contraction in the previous quarter, had to be wound down. Some analysts say that buyers may be waiting for clarity to emerge on the goods and services tax that may bring down prices of vehicles to some extent.
In any case, weak truck sales during a normally robust quarter hint at sluggish economic activity too. The Indian Foundation of Transport Research and Training says that in February, truck rentals receded by 2.5% as the supply chain disruption that happened after the note ban is yet to be fixed. Also, regardless of official gross domestic product data, its report adds, “Barring agriculture, the manufacturing sector, infrastructure sector and trade activity did not bode well for the overall economy and had directly hit the cargo availability...”
Meanwhile, on Wednesday, Siam put to rest the speculation of a delay in implementation of the new emission norms. So, with about a fortnight for the March quarter to end, it is unlikely that the pre-buying effect can ramp up M&HCV sales.
As Nitesh Sharma, an analyst at PhillipCapital (India) Pvt. Ltd, reiterates, “Pre-buying has been weaker in M&HCV segment with flattish sales growth in the March quarter compared to a year ago versus an expected 20%+ growth rate. Apart from lower-than-expected revenue, elevated discounts to clear stock would lead to margin pressure too for these firms.”