The commercial vehicle segment is getting its mojo back

Tata Motors is estimated to report 25% growth in CV volumes in FY23, while Ashok Leyland is expected to see 43% growth in medium and heavy CVs
Tata Motors is estimated to report 25% growth in CV volumes in FY23, while Ashok Leyland is expected to see 43% growth in medium and heavy CVs

Summary

The commercial vehicle demand may remain high with the government’s thrust on infra investment and higher residential property demand

The commercial vehicle (CV) segment, which has been treading a rough path, is set to rebound sharply. This is evident from the March volumes that have seen double-digit growth from a year earlier. Tata Motors Ltd and Mahindra and Mahindra Ltd (M&M) reported a 16% growth in CVs each, while Ashok Leyland Ltd and VE Commercial Vehicles Ltd (VECV), a joint venture between Eicher Motors Ltd and the Volvo group, clocked 17% and 25% increases, respectively.

For the March quarter as well, these companies have clocked double-digit growth. Tata Motors, Ashok Leyland, and VECV volume growth was 11-12%, while M&M sales volume surged by 54%. Analysts reckon the higher growth for M&M can be attributed to two reasons. One, a shift in the company’s focus towards CVs because of limited use of semiconductors and two the focus on regaining market share.

Regaining strength
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Regaining strength

The demand for CVs is likely to remain elevated with the government’s thrust on investment in the infrastructure sector and the higher demand seen for residential property projects. “CVs continue to grow on increasing economic activity and high capacity utilization. We expect the momentum in the CV cycle to continue," said analysts at Motilal Oswal Financial Services in a report on 1 April. Tata Motors is estimated to report 25% growth in CV volumes in FY23, while Ashok Leyland is expected to see 43% growth in medium and heavy CVs, according to analysts at Motilal Oswal.

The demand scenario is rosy, but there are margin pressures from higher input costs and supply chain constraints that have come as a fallout of ongoing geopolitical tensions. These could result in price hikes. Diesel prices have also surged. These factors might weigh on CV sales, but the impact is not expected to be severe, unlike for the passenger-vehicle and two-wheeler segment.

“The CV industry is robust and the recovery in the economy is firm. Against this backdrop, the pass-through of incremental costs from the rise in commodity prices is relatively easier. Fleet owners can pass on higher fuel prices as the end-demand is strong," said an analyst who spoke on the condition of anonymity.

Meanwhile, increasing fuel prices could rise the demand for CNG variants in the light CV segment. Ashok Leyland’s CNG vehicles in itsintermediate CV portfolio, which were recently launched, is seeing increased momentum, said analysts at Motilal Oswal in a report on 29 March.

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