HCV & MCV Sales Stick To The Growth Path, Yet To Capture Momentum

In one of the clearest signs yet that an economic turnaround could indeed be underway, sales of medium and heavy commercial vehicles grew for the first time in 29 months after having contracted sharply in the past few months.

Passenger vehicle sales have already recovered in the past few months but commercial vehicle sales are most closely tied to economic growth, which has shown signs of revival.

Moreover, Financing Environment is stabilizing; delinquency levels have started trending downwards on back of huge cash flows of fleet operators.

In ICRA's estimates, the M&HCV Sector is likely to register a growth of 12-14% in FY2016 driven by continuing trend towards replacement of ageing fleet,improvement in operating economics of fleet operators and some pre-buying ahead of mandatory introduction of Anti-Lock Braking System(ABS) from October 2014.

Though the operating environment has improved but not significantly.Some of the reasons being :

Though the Replacement led demand may continue but sustainability contingent on favourable investment cycle.
Demand continues to be subdued.Though there has been some pickup but the momentum is lacking which can be understood from the fact that nearly two third of fleet operators indicated that the demand has not improved meaningfully.
As per Fleet operators, the fleet utilisation level has increased marginally over the past few months and currently vary over 70-85% across regions and most of the fleet operators don't seem to have capacity expansion plans at present.

However,Firm Freight Rates and lower Diesel prices has supported improvement in cash flows.Barring pressure due to unseasonal rains and lower agricultural output, freight rates have remained firm.

Adding to the driving growth in sales is the fact that the financing environment has shown signs of stability backed by improving cash flows.

Some of the possible reasons for Financial Stability:

There has been reasonable amount of discipline among financiars when it comes to maintaining LTV's and assesing the credit quality of borrowers.
Improved rate of cash flows of fleet operators due to lower Diesel prices and increased collection efforts.
Large Fleet operators continue to enjoy competitive pricing(10-11%) from Private Sector Banks.
Financial experts are hopeful that the recent pickup in M& HCV sales are likely to continue and would get support from Government's efforts to revive Investments in the infrastructure space.

Source- ICRA