Indian commercial vehicle sector to log volume growth: Fitch Ratings

The Indian commercial vehicle (CV) industry is set to log growth for the next couple of years with economy reviving and Covid-19 pandemic fading away, said experts.

The CV sector will register mid-to-high teens over the next couple of years, said Fitch Ratings in a report.

The sector recovered 26 per cent in the fiscal 2021-22 after being hit by Covid-19.

During the current fiscal, the CV majors are logging good growth driven mostly by goods carriers while sales of buses is also picking up.

According to Emkay Global Financial Services, the CV sector maintains its uptrend, supported by improved freight availability.

On a year-on-year (YoY) basis, domestic volumes grew by 39 per cent for Mahindra and Mahindra, 38 per cent for Ashok Leyland, 14 per cent for VE Commercial Vehicles Ltd and 0.3 per cent for Tata Motors.

A recovery in medium and heavy commercial vehicle (MHCV) from multi-year lows, along with sustained growth in light commercial vehicle (LCV) categories, will help overall segment volume reach close to one million units by FY24 - the level of the last cyclical peak recorded in FY19, Fitch Ratings said.

Growth in the passenger CV category, which experienced a sharper pandemic impact due to travel restrictions and the suspension of school and office commutes, will also aid growth.

However, their share will be below 15 per cent of the overall CV volume, Fitch Ratings added.

A rapid recovery in India's economic activity after the pandemic shock and the government's planned increase in infrastructure spending will help sustain an improvement in fleet utilisation rates, supporting freight economics for operators.

This should aid the revival of the replacement cycle, notwithstanding pressure from high inflation and a rise in borrowing rates since the start of the Russia-Ukraine war.

According to Fitch Ratings, high fuel rates will also spur replacement of older CVs with new, more energy-efficient vehicles, including those with compressed natural gas drivetrains in the smaller categories.

Improving earnings visibility for fleet operators, along with manageable asset quality and funding access for lenders, should underpin credit availability, Fitch Ratings said.