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Auto: A Happy Ending?
Domestic sales of commercial vehicles are likely to be the lowest in a decade during FY 2021, but there’s hope at the end of this dark tunnel
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In 2018 India was the world’s third largest commercial vehicles market and the fastest growing globally. In the year-and-a-half that followed, commercial vehicles sales in India began to plummet. By February 2020 leading industry players witnessed a 35 per cent degrowth in sales of commercial vehicles over the same month last year. Sales figures for March and April are not available yet.
According to data released by the Society of Indian Automobile Manufacturers (SIAM), commercial vehicle sales fell by 28.75 per cent to 7,17,688 in FY 2020 from 10,07,311 in FY 2019. The downhill in sales could be attributed to the economic downturn in the country, slowdown in infrastructure projects, the liquidity crunch, implication of axle load norms, the impact of GST and similar others. The Covid-induced lockdown exacerbated the nightmare.
“Very recently, the output of the commercial vehicle industry has been badly hit by the countrywide lockdown owing to the outbreak of coronavirus, which indicates continuation of a negative market outlook for the commercial vehicle industry,” said Karan Chechi, Founder and Research Director, TechSci Research. TechSci Research is a syndicate and customer research firm. “Additionally, outbreak of the coronavirus pandemic, coupled with worsening financial profiles of commercial vehicle fleet operators and the price hike of commercial vehicles, led by transition to BS-VI emission norms, is expected to further slow down the commercial vehicle industry by eight per cent to ten per cent in FY2021,” he said.
According to TechSci Research, the medium and heavy commercial vehicles (M&HCV – read trucks) segment was the worst impacted as it witnessed a degrowth of around 42 per cent in FY2020 compared to the corresponding period in FY2019.
Ashok Leyland’s truck sales dropped to 4,706 units in February 2020, from 11,117 units in February 2019. Mahindra & Mahindra also saw a degrowth of around 25 per cent in commercial vehicle sales in February 2020 compared to the same month in 2019. Volvo trucks witnessed a degrowth of around eight per cent in February this year, having sold 147 units in during the month compared to 160 units in February 2019.
Tata Motors reported a 35 per cent decline in domestic sales of its vehicles in February 2020 to 25,572 units from 39,111 units in February 2019. In March 2020 Tata Motors sold only 5,336 commercial vehicles, going by TechSci Research data.
Wait and Watch mode
“Sales of M&HCV segment is expected to witness further degrowth of around 12 per cent to 14 per cent by the end of FY 2021. It is expected that the commercial vehicle industry will revive by FY 2023 due to the resumption of several infrastructure projects, investment in several new infrastructure projects, revival of economic growth of the country and development in supply chain,” Chechi said.
Manish Gupta, Senior Director from Crisil Rating opines, “As the economy is opening up, there will be some bit of improvement in demand on a y-o-y basis. But for fiscal 2020-21 , we still anticipate a decline, which is similar to the decline last year.” Shamsher Dewan, Vice President and Sector Head - Corporate Sector Ratings, ICRA Ltd said, “Apart from low industrial activities, we expect a slow ramp up in construction activities because of migrant labour not been available.”
Light at End of Tunnel
Even as domestic sales of commercial vehicles are likely to be the lowest ever in a decade during FY 2021, industry leaders expect better days in the second half of the financial year. Some industry players maintained that things should improve from the second half of the current financial year and that industry should come back on track by FY 2022.
Siddhartha Lal, Managing Director of Eicher Motors, said, “We have witnessed the impact of this situation, but have chosen to focus on the opportunities within these problems. Now, as the lockdown is easing out, we see strong initial customer interest and confidence. Our BS-VI products have received great feedback from customers and we have planned a strong product line-up going forward. We have built our businesses on solid fundamentals.”
“We have a strong balance sheet and cash position, a robust business model with a much-focused approach, and an exceptional management team at Royal Enfield and VECV,” he went on to say, adding, “This has helped us tremendously in facing current challenges and gives us the confidence that we will emerge stronger from this crisis.”
In its bid to outperform the market, Ashok Leyland has recently rolled out AVTR, a new range of trucks on the modular platform using the i-Gen6 BS-VI technology. Developed at an investment of Rs 500 crore, it can support as many as six lakh vehicle combinations. The company claims the modular platform is a first of its kind in the Indian CV market with multiple options of axle configurations, loading spans, cabins, suspensions, and drivetrains on a single platform for the entire range of Rigid trucks, Tippers and Tractors in the 18.5T to 55T category.
Vipin Sondhi, the newly-appointed MD of Ashok Leyland said, “Fundamentally what we are seeing is that each segment of the commercial vehicle industry will have its own trajectory. The situation would depend on various factors like the impact of reforms initiated by the government and other factors like availability of liquidity at the right time. I think every quarter will be better than the previous one and we will have to be ready.”
Cry for Fiscal Incentives
Sondhi lauded the government’s efforts to ensure self-reliance in manufacturing within the nation, but was categorical that the commercial vehicles sector could witness a resurge only if fiscal-based incentives were doled out in the future. Sondhi told BW Businessworld, “If you look at the fiscal vs monetary stimulus, if I may call it, it is more accentuated towards the monetary side. So, it has more do with loan, liquidity, and RBI intervention in terms of interest rates, etc. Will it help the MSMEs? Obviously yes! However, a fiscal stimulus is more long term and sustaining to kickstart demand.”
“The CV industry is core to the economy (as) we transport goods and people. What the government has announced in its ‘Atmanirbhar’ programme and the reforms proposed are general macro-economic stimuli with more (focus on) monetary stimuli,” he said. “An immediate trigger for the CV industry would be well regarded had the government considered a few suggestions that the industry made through SIAM. For example, we have talked about the scrappage policy. We have asked for – at least for a limited term – the reduction of GST from 28 per cent to 18 per cent. We are also expecting (that the government) will accelerate infra spend in rural areas, pushing for urban public transportation (which would be) better for the environment, pollution and safety,” he suggested.
Industry analysts reckon that over the coming two to three years growth in CV sales was hugely likely owing to resumption of infrastructure projects and increase in transportation of non-essential goods, stopped during the lockdown. Some analysts also believe that with the implementation of the scrappage programme and the fleet modernisation programme, the demand for commercial vehicles could witness a further surge in the years ahead.
“Over the course of the next five to six years, the commercial vehicle industry is expected to grow significantly due to several investments towards the development of infrastructure in the country, rapid urbanisation through the development of smart cities and huge investments across different sectors,” said Chechi at TechSci Research.