Commercial vehicle makers to drive into 1-million unit club in FY19

Extraordinary growth in the commercial vehicle (CV) demand is set to drive the industry into the 1-million unit club for the first time. The industry will join segments like passenger vehicles (PVs) and two-wheelers, which entered the million-unit league several years ago (the auto industry made 4 million PVs and 23 million two-wheelers in 2017-18, or FY18).
 
Last year, domestic three-wheeler makers had crossed the 1-million unit production for the first time. Once CV makers enter this league, tractors will be the only automobile segment below an annual production of 1 million units.
 
In the first five months of 2018-19 (FY19), CV production has expanded by 52 per cent to 457,524 units, of which almost 90 per cent was local sales. The production of medium and heavy CVs (M&HCVs) is up 72 per cent year-on-year to 178,688 units, and light CVs registered a growth rate of 41 per cent to 278,836 units. While there is an angle of low base to this growth (production was down about 9 per cent in April-August FY18), the expansion of 52 per cent in volume is still impressive. Even though this growth of 52 per cent may not sustain for the whole year, annual growth is still projected to be much higher than FY18’s growth rate of 10.40 per cent.
 
Vinod Agarwal, managing director & chief executive officer at Volvo Eicher Commercial Vehicles, the country’s third-biggest M&HCV maker, said even if industry’s growth in the second half of the fiscal year softens due to a base effect, annual growth can be as much as 15 per cent.
 
“The high growth seen in the first five months will ensure the annual industry production crosses 1 million units,” Agarwal said.
 
The industry produced 894,551 units of CVs last financial year, with a growth of 10.40 per cent. The highest production for any single year as of now is 929,136 units in 2011-12.
 
The automobile industry’s apex body, Society of Indian Automobile Manufacturers, last week said there is a need to re-look at the CV industry’s FY19 domestic growth projection of 10-12 per cent done at the beginning of the financial year. The domestic demand has expanded at more than 41 per cent as of end-August. Exports are not behind either at 35 per cent.
 
“The CV industry in India has witnessed a steady upswing in sales in recent months. Various macroeconomic factors like improved industrial activities, infrastructure development, and robust demand in private consumption-led sectors are contributing to the growing volumes. We foresee consistency in the growth trajectory this year, provided there is no additional headwind in the sector,” said Rajesh Kaul, product line head of M&HCV at Tata Motors, the country’s top player in the segment.
 

The growth momentum continues in spite of the recent change in axle norms of various categories of trucks, which was seen as a disruption to sales. “It will be unfair to say there was no initial impact of the revised axle norms. It created doubts among the manufacturers on its implementation. However, the growth in August has come despite uncertainties over the new axle-load norms,” said Kaul.

 
The sustained firming up of diesel price and the increase in interest rates of loans has not dented the sentiments either. Agarwal said the company does not see any impact of the increase in fuel prices or the interest rates on sales.
 
“There is a huge demand for the movement of goods, especially white goods after the goods and services tax (GST) rate was brought down. There is a strong demand from e-commerce players who are now focusing on capturing the rural consumers. Transporters are migrating to trucks with higher tonnage after the GST and this is also supported by an improved road network. So, there is a very high replacement demand as well,” Agarwal added.

 
Kaul said the passenger sub-segment of the CV industry is also seeing an upturn in demand for schoolbuses and vans, supported by a demand for ambulances, in addition to the uptick in purchases from state transport undertakings.