Sales of commercial vehicles might take more time to recover

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By Ashish Mitra --
Monday, 28 Dec, 2020

Despite improving macro-economic indicators, sales of commercial vehicles in India could take a longer time to recover than expected, says India Ratings and Research (Ind-Ra).

While the sales of light commercial vehicles (LCVs) segment has started to recover that of medium and heavy commercial vehicle (MHCV) are unlikely to recover before the fourth quarter of 2021-22, it said.

The ratings agency reiterated that MHCV sales could come down by 35-45 per cent year-on-year (y-o-y) in FY21 though the decline in LCV sales is likely to be contained within 20-25 per cent. "In FY22, the industry could see sales growth in double digits especially due to the low base of FY20-FY21," it said in a statement.

Stating that there is an excess system capacity and reduced lower fleet utilisation, Ind-Ra said in April to September period this year, CV sales volumes declined 56 per cent y-o-y with a steeper decline of 76 per cent recorded in MHCVs.

Citing a data of the Federation of Automobile Dealers Associations (FADA), it said that CV retail sales grew sequentially in November 2020 (up 13 per cent from October). However, it remains far behind the average monthly sales recorded during FY19-FY20. Sales volume in November was down 31 per cent y-o-y.

"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 ratings agency said.

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 would need a sharper recovery, it added.

Sales of commercial vehicles might take more time to recover. Despite improving macro-economic indicators, sales of commercial vehicles in India could take a longer time to recover than expected, says India Ratings and Research (Ind-Ra).

While the sales of light commercial vehicles (LCVs) segment has started to recover that of medium and heavy commercial vehicle (MHCV) are unlikely to recover before the fourth quarter of 2021-22, it said.

The ratings agency reiterated that MHCV sales could come down by 35-45 per cent year-on-year (y-o-y) in FY21 though the decline in LCV sales is likely to be contained within 20-25 per cent. "In FY22, the industry could see sales growth in double digits especially due to the low base of FY20-FY21," it said in a statement.

Stating that there is an excess system capacity and reduced lower fleet utilisation, Ind-Ra said in April to September period this year, CV sales volumes declined 56 per cent y-o-y with a steeper decline of 76 per cent recorded in MHCVs.

Citing a data of the Federation of Automobile Dealers Associations (FADA), it said that CV retail sales grew sequentially in November 2020 (up 13 per cent from October). However, it remains far behind the average monthly sales recorded during FY19-FY20. Sales volume in November was down 31 per cent y-o-y.

"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 ratings agency said.

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 would need a sharper recovery, it added.