Commercial vehicle makers unlikely to see festive cheer in October sales

Weighed down by an economic slowdown and increase in axle load - 30% additional capacity - major CV companies are expected to report a decline of around 20% in sales volumes in October 2019

The passenger-vehicle and two-wheeler segments of the automobile industry seem to have got some sales boost this festive season, but there might be little respite for the commercial-vehicle (CV) segment. Weighed down by an economic slowdown, increase in axle load (30 per cent additional capacity) among other things, major CV companies are expected to report a decline of around 20 per cent in sales volumes in October 2019.

In September this year, the total automobile industry sales was the lowest for the month in at least 10 years. According to the Federation of Automobile Dealers Associations (Fada), the apex body of Automobile Retail Industry in India, new CV registration was down 18.5 per cent during the month. Society of Indian Automobile Manufacturers (SIAM) data for wholesale market, meanwhile, showed total CV sales in September 2019 falling 33.06 per cent on a year on year basis.

The outlook for October 2019 sales is also subdued. 

"The CV segment’s growth may be negative, as the slowdown in economic activity, increase in axle load, and weak freight rate have softened the overall interest of large fleet operators. However, we expect LCVs (light commercial vehicles) to fare better than medium and heavy commercial vehicles (M&HCV). We expect Tata Motors and Ashok Leyland to respectively report 18.8 per cent and 16 per cent year-on-year decline in CV sales to 32,000 and 12,700 units in October 2019," said an analyst from Dolat Capital.

Motilal Oswal Institutional Equities has said there are no signs of recovery in the CV segment, but continued production cuts by original equipment manufacturers (OEMs) in the past few quarters have led to an inventory correction (of 30 to 35 days). While there may have been some demand improvement during Diwali for passenger vehicle and two-wheelers — low single-digit sales growth — demand in the M&HCV segment is yet to see a pick-up.

"We expect CV wholesale numbers for both Tata Motors and Ashok Leyland to decline about 37 per cent YoY (about 49 per cent decline for M&HCV) in October," said an update from the firm.

Tata Motors’ president for the commercial vehicles business unit, Girish Wagh, said during a recent investor call: "It's very difficult to project what kind of growth or de-growth is likely to happen. One is seeing some green shoots in demand drivers, but not in demand.”

Some of the demand drivers like the freight availability after monsoon is looking up slightly. The transporters' sentiment index is an indication of their satisfaction with the current business and purchase going ahead. In the case of cargo trucks, the transporters' sentiment index bottomed out during the June quarter; it moved up only slightly in the September quarter. The impact of a low sentiment, however, was seen more in the latter quarter.

Amid a slew of relief measures announced by the government, some fund disbursement to infrastructure projects took place; this is expected to get things moving gradually.

Tata Motors was awaiting the start of some of the new projects and allocation of new projects like allocation of mining licences, said Wagh.

Fleet operators in the M&HCV segment have started some purchase mainly because it makes business sense to replace a 5-7-year-old vehicle with a BS-IV one; there is a huge operating cost advantage and they can also avoid pricier BS-VI vehicles.

Umesh Revankar, managing director of Shriram Transport Finance, which lends to commercial vehicle users, said in an interview that while demand was yet to pick up, the rural market was expected to start seeing a positive change in the last two months of the year. The urban market may take longer for revival, though the LCV market, backed by e-commerce sales, is better. Infrastructure and real estate revival is essential for sales of heavy vehicles.

While there had been a slowdown, it had been different in different end-use segments: Sales of vehicles used for logistics in e-commerce companies had been growing well, said Wagh.

Sales of multi-accelerators and tractor-trailers, used for cement and steel transportation, among other things, had gone down more than the overall industry volume fall. Going forward, the overall industry volume growth would depend on demand growth in the end-use segments during the second half of the year, he added.