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CV sales revive, but worries remain

CV sales revive, but worries remain
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First Published: Tue, Apr 07 2009. 10 03 PM IST

Updated: Tue, Apr 07 2009. 10 03 PM IST
Commercial vehicle manufacturers Tata Motors Ltd and Ashok Leyland Ltd continue to report a sharp drop in sales year-on-year, but that masks the considerable improvement in performance since December. In March, medium and heavy commercial vehicle sales of the two companies fell by 40% and 46%, respectively. But sales have grown month-on-month for the third consecutive month.
Tata Motors reported medium and heavy commercial vehicle sales of 12,333 in the domestic market for March, compared with sales of just 4,811 vehicles in December, a growth of 156%. In the case of Ashok Leyland, sales in the domestic market for similar vehicles rose from a low of 1,376 units in December last year to 4,366 units this year, a growth of 217%. Likewise, production of medium and heavy vehicles has grown by 224% at Tata Motors and by 276% at Ashok Leyland.
Evidently, the commercial vehicles industry has gotten over the excessively pessimistic sentiment that prevailed late last year. But that doesn’t mean the industry is out of the woods. Production is still considerably lower than year-ago levels, and the lower capacity utilization will affect profitability.
Some of the demand seen in February and March would be related to year-end purchases made to take advantage of the depreciation benefit. From April, such demand will evaporate. Besides, there is no improvement in the area of vehicle financing, as banks continue to be cautious about lending. As a result, the year-on-year drop in volumes is expected to continue for some time.
It’s only in the second half of the current financial year that companies may report growth, and that too because of the benefit of a low base. Even if the commercial vehicle firms manage to grow volumes over the previous financial year, earnings are likely to be lower, weighed down by high interest costs and depreciation charges.
While Ashok Leyland has embarked on a domestic capital expenditure drive, Tata Motors is saddled with its purchase of Jaguar-Land Rover, in addition to the capital expenditure involved in the Nano project.
Write to us at marktomarket@livemint.com
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First Published: Tue, Apr 07 2009. 10 03 PM IST