Surplus capacity among reasons cited
Domestic commercial vehicle (CVs) sales could take longer to recover than expected, despite the improving macroeconomic indicators such as the Index of Industrial Production, India Ratings and Research (Ind-Ra) said in a report.
“This is primarily due to the spare capacities created in the system driven by the peak sales achieved during FY18-FY19 and implementation of revised axle load norms coupled with reduced fleet utilisation,” according to the report.
It said while medium and heavy commercial vehicle (MHCV) sales are unlikely to recover before Q4 FY22, sales of light commercial vehicles have started to recover as they provide the last-mile connectivity and because of increased e-commerce activities. “Under MHCV, tipper trucks could see demand coming from improving construction activities,” it said. “MHCV sales could decline by 35%-45% year-on-year (yoy) (y-o-y) in FY21, though LCV sales decline is likely to be contained within 20%-25% y-o-y,” it said.
“In FY22, the industry could see sales growth in double digits, especially due to the low base of FY20-FY21,” it added.Nevertheless, the industry could revive earlier if an assertive scrappage policy is introduced in timely.” it added.
The agency also said inadequate freight rate increases would dent the profitability of fleet operators.
“Ind-Ra does not expect freight rates to improve materially due to lower fleet utilisation, thus impacting the affordability of fleet operators to replace their existing trucks,” it added.
In the CV industry generally 70%-80% of the demand comes from the replacement market and liquidity issues would impact CV sales.
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