Outlook
The M&HCV segment
depends much on infrastructure sectors like steel, cement as well
as transportation. The infrastructure industry growth index has
fallen to 3.4% in November 2001 from 7.4% in November 2000. The
cement and coal sectors reported the highest growth rates of 12%
and 7.9% respectively whereas the steel grew by mere 0.7%.However
the agricultural sector is projected to grow by remarkable 6.9%
resulting in the GDP growth during 2002-03 , though on a low base
of drought –affected harvest and low food production. Since CV
sales have a linkage with industrial growth and diesel prices, the
demand may fall on account purchase deferment due to prolonged
uncertainties in respect of fuel prices and uniform sales taxes.
The crude oil has grown by 0.6% in the current fiscal and the
sustained increase in the global crude oil prices has led to a
hefty increase in the diesel prices. The railways have absorbed
this price increase without hiking the freight rates and this might
further exert downward pressure on the profitability of truck
operators leading to decelerated purchases of new trucks. However
with the GDP growth rate estimated to be around 4.5-5% in 2002-03 ,
with the industry growth expected at the rate of 4% ; there seems
to be some recovery in the CV sales in the next fiscal.The CV sales
can grow by 7% if the economy grows by around 6.4% which was the
earlier projected growth. The growth of medium and heavy trucks and
buses would be relatively slower due to better railway efficiency
with which trucks compete for moving bulk cargo, higher diesel
prices and the poor quality of road infrastructure. The demand for
HCVs will depend on replacement demand by the fleet operators, good
monsoon implying god agricultural growth. The HCVs sales was up by
20.7% and the LCV sales dropped by 10.5% in the half-year ending
2001-02.
In the long term, the
market will slowly shift towards medium and heavy multi-axle
vehicles as is the worldwide trend at present. Already, vehicles
made by Volvo are being recognized for their better performance in
terms of lower turnaround time and lower driver fatigue. This would
require large investments in highways which is expected as the
government of India continues with its reform agenda. The entry of
high tonnage vehicles will contribute towards changing the
structure of CV segment in the long run. This will also improve the
technology of vehicles available in the country.
The demand for MUVs has
been held up by the coming in of the 'Qualis'. Without the model,
sales growth in the segment in the first three months would have
been negative. Clearly, there seems to be a gradual shift of
preference to utility vehicles which can provide the same comfort
and driving experience as that of a mid-sized car, especially in
urban areas. Toyota's Qualis was the first to take advantage of
this latent demand. M&M's 'Bolero' is also targeting the same
segment so as Telco's 'Sumo Deluxe'. We expect that sales of MUVs
will take off in the urban areas in the future while any progress
in the implementation of infrastructure projects will also drive
sales in the commercial sector.
The recent proposals
for the sector in the budget will provide some growth to the
existing demand prospects. With quantitative restrictions being
removed from April 2001, the government has imposed an import duty
of 105% on second hand cars and commercial vehicle imports, so as
to discourage imports in these categories. Besides, cars more than
three years old will not be permitted for imports and only right
hand vehicles are to be permitted , which would restrict imports
from US.Another silver lining in the bus segment is the recent
Supreme Court order. All buses plying in the National Capital
Region (NCR) have to be run on CNG fuel. In a bid to prevent
pollution it is likely that other state governments too will get
encouraged from such a ruling. This paves the way for better
growth
in the bus segment in
the next couple of years.The hike in import duty for new two
wheelers and cars from 35% to 60% for CBUs (completely built up
units), should help in protecting domestic manufacturers. Most
foreign car manufacturers in India will now avoid importing new
CBUs as the effective duty is very high at around 120%. They will
however import completely knocked down kits (CKDs), which continue
to attract an import duty of 35%. In the long run, i.e. five to
eight years, CV sales will be able to witness a growth of 8 to 9%
CAGR leading to substantial improvement in financials of CV
manufacturers. Therefore, investors with long term perspective are
advised to enter the segment as the downside risk is limited, while
upside potential is huge.
