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Commercial vehicle sales to grow by 23-28% in current financial year: Crisil

Sales of commercial vehicles has been contracting since 2018 as a result of economic slowdown triggered by the bankruptcy of IL&FS and revised load carrying norms which led to more than 20% increase in freight carrying capacity of trucks. Covid-19 pandemic further impacted sales of trucks and buses.Premium
Sales of commercial vehicles has been contracting since 2018 as a result of economic slowdown triggered by the bankruptcy of IL&FS and revised load carrying norms which led to more than 20% increase in freight carrying capacity of trucks. Covid-19 pandemic further impacted sales of trucks and buses.

  • The earlier estimate was 37-38% but it has been revised considering the impact of the second wave of covid on demand

Sale of commercial vehicles is likely to grow in the range of 23%-28% in the current fiscal year compared wit the earlier estimate of 37-38% since demand will be impacted by the second wave of covid infections, according to ratings agency Crisil.

The recent growth in covid infections led to states imposing lockdown to contain the spread of the infections, which impacted activity in sectors such as manufacturing and infrastructure.

The commercial vehicle market saw two consecutive fiscals of steep volume decline (29% and 21% in 2020 and 2021, respectively), following multiple headwinds such as revised axle norms, BS-VI transition, and the pandemic, said the ratings agency in a note.

“While a sharp recovery from the lows was on the cards this fiscal, it will be constrained by a weak first quarter because of the second wave of the pandemic. In April, freight rates fell 20% on-month even as diesel prices remained elevated, hurting fleet operators. With lockdowns becoming widespread in May, freight movement, and consequently the profitability of fleet operators, would remain under pressure, weighing on demand at least in the first quarter," the note further mentioned.

Sales of commercial vehicles has been contracting since 2018 as a result of economic slowdown triggered by the bankruptcy of IL&FS and revised load carrying norms which led to more than 20% increase in freight carrying capacity of trucks. Covid-19 pandemic further impacted sales of trucks and buses.

“MHCV (medium and heavy commercial vehicles) volume, which was hurt more in the past two fiscals, should see a strong 35-40% growth this fiscal, driven by the government’s infrastructure thrust and revival in economic activity. LCVs could grow 15-20%, given continued last-mile demand from e-commerce, consumer staples and the replacement market. Demand for buses—the segment hit the hardest because of schools shutting and the lack of demand from state transport undertakings and corporates—should grow 67-72%, but will remain at multi-year lows," said Hetal Gandhi, director, Crisil Research.

According to Crisil, credit metrics of commercial vehicle makers are expected to improve as margins will expand on better capacity utilization and product mix.

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