BackInfra, economic activity pave way for healthy CV sales
Post-covid revival in economic activity and higher consumer demand have speeded up cyclical recovery
PremiumNEW DELHI : India’s commercial vehicle industry is likely to sustain its growth momentum following a gradual revival in demand from construction, e-commerce and mining sectors buoyed by a rebound in commercial activity, improving freight rates and the spending push by the government on large infrastructure projects.
Commercial vehicle sales grew 26% in FY22 to 716,566 units from 568,559 units in the previous year, according to data issued by the Society of Indian Automobile Manufacturers.
“The CV industry is poised for further growth on the back of increased activity in road construction, improved infrastructure spending and mining. The supply situation continues to show gradual improvement. Despite uncertainties, business sentiments continue to be positive with increasing fleet utilization levels and freight rates. Improvement in consumer sentiment, buoyancy in e-business, reopening of schools and offices, helped regenerate demand," said Girish Wagh, executive director, Tata Motors. Growth was led by medium and heavy commercial vehicles.
Revised axle load norms and the implementation of stricter Bharat Stage-VI emission standards had severely dented CV sales even before the pandemic, but the post-covid recovery in economic activity and rising consumer demand has fast-tracked a cyclical recovery. However, CV sales are still far lower than FY19 levels, when volumes had fallen after new axle load norms were implemented.
In covid years, smaller commercial vehicles were leading the recovery for a majority of original equipment manufacturers. Mahindra and Mahindra Ltd, for instance, saw 12.37% rise in FY22 in sales of pick-up trucks, which are used for last-mile applications.
However, while freight rates continued to increase every month, fleet utilization is flat, thanks to an uneven rate of demand growth in industry sectors. “In April, transporters passed on higher diesel prices by raising freight rates on several routes. However, fleet utilization was flat on-month. While there was higher utilization for agri-products, cement, mining (coal and iron ore), and parcel and loose goods, it was offset by slightly lower utilization for auto-carriers, market load and steel. Utilization was flat for fast moving consumer goods, fast moving consumer durables, containers, textiles, petroleum tankers, " a survey of 100-plus transporters by rating agency Crisil showed. It said cash flows were becoming tighter due to high fuel costs. “Free cash flows with fleet operators decreased 200 bps on-month, largely because of fuel price rise. Higher operating cost constrained the ability of transporters to generate higher, or maintain, cash flows compared with last month," the Crisil report added.
Higher operating costs can constrain transporters’ ability to buy or replace, or even profitably deploy their fleet in the spot market. “In FY19, over 1.2 million CVs took national permits, but in FY22, it is down to 1.08 million. This is worrisome as it implies demand will outstrip the number of trucks," said Abhishek Gupta, general secretary, All India Transporter’s Welfare Association.
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