Truck sales hit a roadblock; a temporary blip?
Post-monsoon trends in sales and freight rates would be key to chart out the earnings trajectory for truck makers such as Ashok Leyland, Tata Motors
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Medium and heavy commercial vehicles (trucks) hit a roadblock in June, with sales growth falling below expectations.
Add to this, the rentals commanded by trucks on key routes dipped for the first time in 21 months.
Tata Motors Ltd, the market leader in commercial vehicles, reported a significant 11% year-on-year (y-o-y) drop in June sales.
This came after a 23% y-o-y rise in May.
Further, even sales of the second biggest truck manufacturer Ashok Leyland Ltd were a mere 8% higher—both in May and June—when compared with a year ago.
Analysts hope that this slowdown is the result of scorching growth rates in the earlier months when pent-up demand pushed up trucks sales.
Most say that it is a temporary blip. They believe the monsoon would have affected some distribution logistics, too.
But what’s more surprising is the inability of truckers to pass on the hike in diesel prices to customers. Freight rates on even arterial routes such as Delhi-Mumbai-Delhi fell by 1.5% on 1 July, in spite of two rounds of hikes in diesel prices. The industry was expecting a 2.75-3.25% hike in rentals. According to the Indian Foundation of Transport Research and Training, the arrival of fruits and vegetables was 15% lower this season. Meanwhile, demand for transport from sectors such as cement, fertilizers and timber was also disappointing. Sadly, the so-called green shoots of recovery are yet to seep into the core sectors.
A month’s drop or stagnation in rentals is not bothersome, unless it continues. If it becomes a trend, then investors in truck manufacturing firms will have to worry since weak rentals will lower the enthusiasm to purchase new trucks. That will be followed by a fall in truck sales.
Amid these worrying signs, light commercial vehicles sales growth has been more stable, perhaps because the recovery in that segment was delayed when compared with trucks.
Stock prices of Ashok Leyland and Tata Motors have been wobbly in the last couple of months, although they had outperformed the other auto segments through the recovery.
Post-monsoon trends in sales and freight rates would be key to chart out the earnings trajectory.