Ashok Leyland Ltd announced this week a nine-day shutdown at its Pantnagar plant due to “weak demand and outlook for the industry." Coming after a six-day shutdown in June, it reflects the ill fortune of the medium and heavy commercial vehicle (trucks) industry.

The second largest truck maker is not battling the slowdown alone. A spokesperson of commercial vehicles market leader Tata Motors Ltd said in response to a query from Mint, “The overall CV industry demand has softened. Production plans at our manufacturing locations are as per our plan and aligned to the market demand. Few days of the month are also being utilized for planned maintenance activities."

Meanwhile, data on new vehicle registrations released on Tuesday by the Federation of Automobile Dealers’ Association (FADA) shows that CVs were the worst hit by the slowdown in the auto sector. In June, while overall vehicle registrations dipped 5.4% year-on-year (yoy), registrations of CVs fell by a huge 19.3%.

Dealer inventory, too, rose from 45-50 days in May to 60-65 days in June. This is worrisome given that there was a drop in inventory in two-wheelers and passenger vehicles.

In this backdrop, a recovery is unlikely soon. As Jefferies India Pvt Ltd says in a note, “In MHCVs, the down-cycle started in 3QFY18 and is in its third quarter. Historically, MHCV down-cycles have averaged seven quarters with a range of 4-11 quarters."

Another barometer of economic health, truck rentals, have been sliding since November. This is notwithstanding the rise in diesel prices, which would normally have been passed on fully. Besides, analysts believe that the transition to BS-VI norms, wh\ich is expected to increase vehicle prices by 10-15%, will play its part in delaying the demand revival in CVs. Recent data, in fact, shows that growth is slowing down even in the light CVs segment, which had hitherto bucked the trend.

These concerns are mirrored in the 25% drop in Ashok Leyland’s stock price since end-October last year, which is double the rate at which the Nifty auto index fell.

Note that Tata Motors stock has performed relatively better because its financials hinge on Jaguar Land Rover Ltd’s performance.

In sum, the odds are stacked heavily against a near term recovery for the commercial vehicles segment.

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