Mumbai: India’s liquidity crisis may dent sales of heavy trucks, said industry executives, as factors such as financial woes at Infrastructure Leasing and Financial Services Ltd (IL&FS) and currency volatility threaten to hit one of the fastest-growing automobile segments. Almost 100% of heavy truck purchases are financed and with small financiers struggling and bigger financiers raising loan rates, fleet operators are forced to defer purchases, the executives said. Heavy trucks comprise 36% of all commercial vehicles sold.

“Few headwinds such as the oil price increase and liquidity tightening (credit availability as well as interest rate) are challenges which have dampened the sentiments to some extent since the last few weeks," said Girish Wagh, president of the commercial vehicle unit at Tata Motors Ltd, India’s largest heavy truck maker. He said the situation is “dynamic at this juncture".

“We are still in the initial phase of liquidity tightening, it is not acute or sustained," Wagh said in reply to emailed queries from Mint. He said Tata Motors is “cautiously optimistic" on the second half of this financial year through March.

Sales of medium and heavy duty trucks rose 47% from the year ago during April to October to 199,573 units. In comparison, total domestic sales of buses and trucks grew 36% to 574,463 units, showed data from the Society of Indian Automobile Manufacturers.

Tata Motors and Ashok Leyland Ltd control over 80% of the heavy truck segment. “Some smaller financiers have completely withdrawn in the interim and are not issuing any further delivery orders for new truck purchases. The better-placed NBFCs (non-banking financial companies), while having adequate cash reserves, have decided to make the most of this liquidity crunch and have upped their IRR (internal rate of return) by 15-20 basis points to improve bottom-lines," said Anuj Kathuria, president of global trucks at Ashok Leyland.

“This has resulted in some genuine postponement of purchases by customers who were considering purchases during the quarter but have not decided to let the interest rates to cool off a bit," Kathuria said in an emailed response to queries. A basis point is one-hundredth of a percentage point.

To be sure, commercial vehicle demand has been riding on macro-economic factors such as robust manufacturing activity, increase in private consumption and higher government spending on mining and large infrastructure projects.

Most major fleet owners and organized logistics service providers will also start to replace their older vehicles in the run-up to the implementation of Bharat Stage VI emission norms on 1 April 2020, which is expected to boost sales.

Vinod Sahay, chief executive at the truck and bus division of Mahindra and Mahindra Ltd, said banks have not fully withdrawn from lending to the commercial vehicle sector, but some small NBFCs are under stress and have become stricter. “The change is not huge but the mid and lower rung of customers find it a bit more difficult (to obtain financing) because they are not the ones who will be funded by larger banks owing to stricter norms," Sahay said on 2 November.

Motilal Oswal Securities Ltd expects domestic heavy truck volumes to grow at a compounded annual growth rate of 7.7% over FY18-21. This would be off a high base as annual growth from FY18 to FY20 would be in the double digits, with an expected 10% decline in FY21, the brokerage said in a 19 November note.

Going forward, analysts believe the liquidity situation will ease, given the central bank’s stance to maintain system liquidity at neutral.

“While RBI has been injecting liquidity through open market operation purchases, its interventions in the forex market to contain volatility by selling dollars have sucked out some rupee liquidity. However, its stated stance has been to maintain system liquidity at neutral and that is what it is trying to do", said Ajay Manglunia, executive vice-president, Edelweiss Financial Services Ltd

Shayan Ghosh contributed to this story.

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