Commercial vehicle growth remains strong despite liquidity crunch

The commercial vehicle (CV) segment in India is expected to grow despite the liquidity crunch and decline in profitability from fleet operators, credit rating agency, Icra said in its year end assessment.

Tightened financial scenario would have a near- term impact on commercial vehicles or CVs and small fleet operators (SFOs) with relatively weak credit profile would have biggest impact, the report said.

However, with improvement in liquidity, the CV growth would largely be driven by a pick-up in infrastructure sector and stable demand from core freight-intensive sectors such as cement, steel, automobiles, and EXIM trade.

The report said medium and heavy commercial vehicle or M&HCV (truck) demand has not been affected by revision in axle load carrying norms and is estimated to grow around 18-20 per cent in terms of volume in FY18-19.

The demand is expected to witness a healthy growth in FY20 even after implementation of BS-VI emission norms.

Also, the demand for ICVs and LCV (trucks) has remained healthy from consumption-driven sector as well as replacement cycle.

“While light commercial vehicles or LCVs are on structural uptrend, the tightening of financing environment could derail the growth momentum in the near-term to some extent,” the report pointed out.

However, this segment is expected to grow by up to 20 per cent in FY19.

Buses are estimated to register 12-14 per cent growth aided by replacement-led demand following a year of sharp contraction in bus sales.

Moreover, higher demand in CV segment will lead to an improvement in earnings which will allow companies to maintain their credit profile.

Icra expects that, in addition to capacity augmentation, CV manufacturers would invest in multiple avenues such as new product development, addressing portfolio gaps, technology upgradation related to next level of emission norms.

They will also make investments in sales network expansion.

Accordingly, CV original equipment manufacturers are expected to spend about Rs 50,00-60,00 crore annually, the report said.