BackFirms turn focus to light commercial vehicles
The companies are intensifying their focus on the LCV segment on hopes of robust demand in the rural and semi-urban marketsIn the June quarter, M&M, Tata Motors and Ashok Leyland posted declines of more than 67%, 85% and 79%, respectively, in LCV sales
PremiumTata Motors Ltd, Ashok Leyland Ltd and Mahindra and Mahindra Ltd (M&M), India’s top three commercial vehicle makers, plan to produce 15% more light commercial vehicles, or LCVs, in the September quarter year-on-year, said four people aware of the matter.
The companies are intensifying their focus on the LCV segment on hopes of robust demand in the rural and semi-urban markets that have been relatively less affected by the coronavirus pandemic.
A fast-growing online retail industry as well as increasing movement of essential goods such as fruits and vegetables is also helping drive demand for such vehicles.
“Rural and semi-urban markets contribute close to 75% of the total LCV sales for the leading manufacturers, including M&M’s Bolero pickup, Tata Motor’s Ace and Ashok Leyland’s Dost," said one of the four people cited above.
Citing pent-up demand as a key driver of light commercial vehicles sales, the second person said migrant workers who have returned to their villages are also buying LCVs for self-employment.
“Several migrant workers have bought their own light commercial vehicles as they are considering self-employment or jobs closer to their homes as a better bet than returning to the cities. Also, increased government spending in the rural areas, job creation is contributing to this phenomenon. This also is a peak season for transporting farm produce and construction materials," the person said.
In the June quarter, M&M, Tata Motors and Ashok Leyland posted declines of more than 67%, 85% and 79%, respectively, in LCV sales, amid a strict lockdown during most of the period. However, the growth expectations in the September quarter indicates that the automakers are confident of a revival in LCV demand, especially in rural and semi-urban markets.
Sales of more profitable heavy trucks, used to transport goods on highways, mining and construction sectors, remain weak with economic activity facing the adverse impact of the pandemic.
Production of medium and heavy commercial vehicles, or MHCVs, is estimated to decline 40% in the September quarter as the category struggles with excess load carrying capacity, low freight availability and a shortage of drivers.
“While overall industrial manufacturing is still down, which continues to hurt MHCVs, the consumption basket comprising low-ticket items and e-commerce is driving demand for LCVs. It is turning out to be better than what was estimated earlier as rural demand is also playing out well," said Shamsher Dewan, vice president–corporate sector ratings, Icra Ltd.
According to Nitin Seth, chief operating officer, Ashok Leyland, small and light commercial vehicles are mainly used for carrying products of daily household needs such as fruits and vegetables, food grains, dairy products, FMCG and LPG cylinders.
“Despite the covid-19 outbreak and subsequent lockdowns, these shipments have continued largely in a normal way. Hence, post the partial opening of the lockdown in May, we have started seeing a growing demand for such vehicles. Bumper crop across agriculture categories and government supported buying of the farm produce has contributed to the momentum," Seth said.
He said LCV demand has been more robust in rural and semi-urban pockets of states such as Uttar Pradesh, Maharashtra, Tamil Nadu, Orissa, Kerala, Karnataka and Telangana.
Veejay Nakra, chief executive of the automotive division at M&M, attributed direct home distribution of vegetables, groceries, FMCG items and e-commerce as the primary demand drivers for Bolero pickups in the urban markets.
Tata Motors declined to comment to emailed queries.
According to data from the Society of Indian Automobile Manufacturers (Siam), M&M was the leader in the LCV market with domestic sales of 190,000 goods carriers in FY20. Tata Motors and Ashok Leyland sold 175,000 and 44,000 LCVs, respectively, last fiscal.
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