Commercial vehicle sales nearing pre-covid levels
2 min read . Updated: 10 Nov 2022, 04:56 PM IST
Premium- In the second quarter, CV volumes grew 39% aided by replacement buying by fleet operators, increased govt spending on growth sectors like infrastructure, back to office and school situations, and increased e-commerce demand,
A favourable mix of factors is propelling demand for commercial vehicles to their best-ever pre-covid-19 volumes in India.
In the second quarter of the financial year 2023, commercial vehicle volumes grew 39% on a yearly basis. The pick-up was aided by replacement buying by fleet operators, increased government spending on growth sectors like infrastructure, back to office and school situations, and increased e-commerce demand, a report by ratings agency Icra said.
Stability in freight rates is also leading to greater fleet viability for CV fleet operators, the report added.
"The positive growth trends were broad-based across the three sub-segments viz. medium & heavy commercial vehicles (M&HCV), light commercial vehicles (LCV) and buses, with each of these reporting healthy double-digit growth in wholesale dispatches in Q2 as well as H1 FY2023. Although headwinds such as the evolving geopolitical situation, elevated fuel prices and increasing interest remain, they are not expected to be a major dampener to domestic CV sales," the report said.
"Deferral of purchases over the past two to three years due to a multitude of factors such as revision in the axle-load norms, macroeconomic slowdown, spread of the pandemic, etc. had resulted in significant ageing of the existing fleet on the road, with the average age of M&HCVs and LCVs in FY2022 estimated at approximately 10 years and 5.5 years, respectively, at historic highs. Accordingly, replacement demand would play a key role in spurring sales over the near to medium term," Kinjal Shah, vice president & co-group head, corporate ratings, Icra, said.
"We believe superior operating economics and load-carrying capacity of new trucks, as well as comfort factors such as higher horsepower offerings, factory-fitted cabins etc., augur well for replacement demand. Additionally, many entities are increasingly mandating fleet operators to deploy newer, cleaner and technologically superior vehicles, which would also push the case for replacement of their older fleet," she added.
Moreover, loan disbursements to the CV sector have also been improving and NPAs have stabilized.
"Disbursements have gained traction over recent quarters and delinquencies have stabilised following normalisation of economic activity and pass-through of increased fuel prices, resulting in improvement in profitability of fleet operators. The ongoing festive season is expected to augur well for the industry in terms of disbursements. However, the borrowers’ ability to pass through the fuel cost and interest cost escalations adequately would remain critical for their profitability," Sruthi Thomas, assistant vice president & sector head, corporate ratings, Icra said.
According to Icra, CV manufacturers are likely to see the benefit of operating leverage and the easing commodity prices; accordingly, aggregate operating profit margins of CV OEMs are expected to revive to 4-6% in FY2023.
This in turn will support the gradual improvement in their credit metrics as well. In terms of the investment outlay, while CV OEMs have limited plans for capacity expansion over the near term, investments in new product development, electric and other alternative fuel vehicles, and tightening emission norms, etc. would continue.
