Uncertainty around CV sales continues despite improving macroeconomic indicators: Ind-Ra

Mumbai (Maharashtra) [India], December 28 : The sales of domestic commercial vehicles (CVs) could take longer to recover than expected despite improving macro-economic indicators like the index of industrial production, the output of core industries and fuel consumption, India Ratings and Research (Ind-Ra) said on Monday.
This is primarily due to spare capacities created in the system driven by peak sales achieved during FY18 to FY19 and implementation of revised axle load norms coupled with reduced fleet utilisation.
While medium and heavy commercial vehicle (MHCV) sales are unlikely to recover before 4Q FY22, said Ind-Ra, that of the light commercial vehicles (LCVs) have started to recover as they provide the last mile connectivity and because of increased e-commerce activities.
Under MHCV, tipper trucks could see a demand coming from improving construction activities. Ind-Ra said MHCV sales could decline by 35 to 45 per cent year-on-year in FY21 though LCV sales decline is likely to be contained within 20 to 25 per cent.
In FY22, the industry could see sales growth in double digits especially due to the low base of FY20-FY21. Nevertheless, the industry could revive earlier if an assertive scrappage policy is introduced timely.
During April to September, the CV sales volumes declined 56 per cent with a steeper decline of 76 per cent recorded in MHCVs. The retail CV sales grew sequentially in November (up 13 per cent month-on-month. However, it remains far behind the average monthly sales recorded during FY19 to FY20. Sales volume in November were down 31 per cent year-on-year.
The MHCV sub-segment, which was already grappling with the excess capacity created in the system post implementation of the revised axle load norms in July 2018 and peak sales achieved during FY18-FY19, suffered significantly with the onset of Covid-19 as economic activities reached an all-time low coupled with capex deferrals across sectors.
The latest macro-economic indicators show a gradual improvement in economic activities. However, it is only likely to inch up the existing fleet utilisation while the incremental demand for vehicles will need a sharper recovery.
The CV industry remains heavily reliant on industrial activities, which have gradually improved, as indicated by 3.6 per cent year-on-year growth in the index of industrial production for October. The output of eight core industries in October 2020 also improved sequentially, though dropped 2.5 per cent year-on-year.
Moreover, expecting a better demand and improving capacity utilisation, manufacturing companies are revisiting their capex plans which were deferred at the beginning of FY21, thus necessitating the higher movement of goods and improved existing fleet utilisation.
Since scaling up of capex could take time, said Ind-Ra, the benefits of the same are likely to accrue in FY22.
Also, e-way bill collection and diesel consumption recovered sharply in October, indicating that road transportation after being affected in the interim due to reduced fleet operators' availability has also reached close to pre-covid levels. About 65 to 70 per cent of the diesel is consumed in the automotive sector.
Nevertheless, some uncertainty continues as part of the traction in manufacturing activities can be attributed to the festival demand while the full recovery can still take longer.
Moreover, certain sectors like real estate, hotel, aviation are still depressed which may contain the overall recovery to an extent. Furthermore, as the second wave of Covid-19 outbreak impacts certain key exporting nations, exports could be a bit gloomy in the near term.