Infrastructure pick-up continues to drive healthy demand for CVs

As per ICRA’s channel check with various transporters and CV dealers across the country, there is an overall positive demand sentiment for trucks across most major markets, although certain pockets report a contrasting trend.

Jul 13, 2018 11:07 IST India Infoline News Service

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After witnessing a volume growth of 20% in FY18, good tidings continue for the domestic commercial vehicle (CV) industry as reflected by a growth of 51% in CV volumes in Q1FY18.

Besides a low-base effect (impact of pre-buying and GST), the demand for trucks continues to be driven by the pick-up in infrastructure investments and overall healthy demand from key freight generation sectors.

As per ICRA’s channel check with various transporters and CV dealers across the country, there is an overall positive demand sentiment for trucks across most major markets, although certain pockets report a contrasting trend.

Shamsher Dewan, Vice President & Sector Head - Corporate Ratings, ICRA Ltd, “Demand for trucks continues to remain strong, driven by a pick-up in construction activity and overall healthy cargo demand. In particular, North India has reported healthy momentum in demand for tractor trailers and MAVs haulage trucks attributable to healthy demand from the automobile sector and allied industries. States in South India like Andhra Pradesh and Telangana, on the other hand, are seeing good traction for tipper and construction-related trucks, driven by a pick-up in infrastructure projects, especially roads, irrigation, and affordable housing.”

Although most of the regions in the country reflected a similar positive demand sentiment, the off-take has been relatively subdued in some markets. ICRA’s interaction with dealers in Uttar Pradesh has also reported a slowdown in sales in Q1FY19, with fleet addition plans being put on hold by operators because of uncertainty related to relaxation in overloading norms recently. The demand from tractor trailers in the Rajasthan market has also contracted since April 2018 as ARAI certified body structure has become mandatory. This has not just increased the overall vehicle cost but also created scarcity as there are limited certified builders of tractor bodies in the region.

The demand for trucks in Central India also reflects a mixed trend. While on one hand, the strong sales in the previous year and the added incremental capacity has kept the demand for additional trucks modest, on the other, with the upswing in construction activity in rural areas likely to continue ahead of the state elections, demand momentum for trucks, especially around the cement belt, remains robust.

ICRA maintains a stable outlook for the domestic CV industry, expecting it to grow in the range of 9-11% during FY19 supported by the pick-up in infrastructure projects, improvement in industrial activity, and healthy demand from consumption-led sectors and; the rural market. While these positive demand-side trends continue, rising pressure on earnings of small fleet owners due to the increasing diesel prices, and recent relaxation in overloading norms, and other regulatory changes are likely to have a dampening effect on the growth from previous year levels.

“Over the medium-term, growth in the industry would also be supported by the impending implementation of BS-VI emission norms from April 2020 onwards. With significant changes to be implemented to meet the tightening norms, CV prices are expected to increase by 8-10%, which will trigger pre-buying and augment CV sales in FY20. Additionally, GOI’s plans on phasing out old diesel vehicles through proposed vehicle modernization program would trigger replacement-led demand over the long term,” Dewan added.

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