Truck rentals are among the lead indicators that determine demand for commercial vehicles (CVs). After growing at a scorching pace of around 30% over the last two-and-a-half years, they have hit a road bump.
Over April and May, truck rentals on key routes in the northern and western belts fell by around 7-9% compared with March. “Cargo offerings from manufacturing sector steeply dropped by 12-15% and the increase in compensatory load from wheat procurement, increased arrival of summer fruit and vegetable crops has not been enough to arrest the decline,” says a report by Indian Foundation of Transport, Research and Training.
Earlier, rising truck rentals, which more than offset the rise in the ownership cost, triggered higher demand. Fiscal 2012 saw a growth of 9-10% in sales volume of lorries and 17-18% growth if we include light CVs, which grew at a faster pace given the need for hinterland transport.
The drop in truck rentals in the past two months has not translated into a secular trend of plummeting sales yet. Individual company sales volumes have shown a mixed trend because of inventory and regional demand disparities.
Tata Motors Ltd, which enjoys a near 60% market share, sold 26% less trucks in the domestic market in May compared with a year ago. But thanks to the 25% year-on-year (y-o-y) jump in light commercial vehicles sales, Tata Motors overall CV sales in May rose marginally.
On the other hand, Ashok Leyland Ltd posted a 12% increase in truck sales. Analysts say stronger demand from the cement and mining sector in the south, where it has a stronghold, might have shored up Leyland’s sales.
It’s a relief that most brokerage reports indicate profitability would remain stable at current levels. “Ebitda margins could improve from the fiscal 2013, benefiting from price increases, operating leverage and softer commodity prices,” says a report by Motilal Oswal Securities Ltd. Ebitda, or income before interest, taxes, depreciation and amortization have been subtracted is an indicator of a company’s profitability.
Yet, the slowdown seems fairly clear, at least until the second half of fiscal 2013. Industry reports suggest truck sales declined despite some leading lorry makers offering hefty discounts, ranging from Rs 1.5-2.5 lakh per vehicle. This is likely to continue until a reduction in interest rates leads to a return of appetite for fleet expansion among transporters.