Commercial vehicle sales likely to enter into a downcycle in 2024-25

Volumes are expected to dip by 4-7 percent

Commercial vehicle (CV) sales in India are likely to decline in financial year 2024-25 (FY25) as the sector enters a period of lull, say analysts.

The CV industry is expected to end FY24 with a 2-5 per cent growth in volume but in FY25 it may decline by 4-7 per cent, according to rating agency ICRA.

Shamsher Dewan, senior vice-president & group head — corporate ratings at ICRA said demand in the CV industry is cyclical. There are three years of up cycle, followed by two years of down cycle.

 “We expect a moderation in demand for CVs at large in FY25 — especially for medium and heavy commercial vehicles (MHCVs) and light commercial vehicles (LCVs). Already, the inventory with dealers is high,” Dewan told Business Standard.

Dewan said in the first half of FY25, demand would moderate as fleet operators wait to gauge the election impact on spending before placing orders.

Government spending, which shaped CV demand recently, would slow down around elections as the model code of conduct kicks in. Demand is set to pick up after monsoons.

Automotive original equipment manufacturers (OEMs) seem to agree. Girish Wagh, executive director at Tata Motors (head of the CV business), said in an analysts’ call: “During the third quarter, we have seen some drop in government expenditure. Also, due to the elections in the five states, there was some impact. And therefore, we do expect a pause in growth in Q4.”

“Due to the general elections, we do see that Q1 at least of next year should be a bit soft and when we meet next, I think we will have visibility post that also. But this is a common phenomenon. Whenever there is a general election, we see an impact for around three-six months,” said Wagh.

Dheeraj Hinduja, executive chairman of Ashok Leyland, told Business Standard last week: “We feel that some slowdown may happen during election time, but on the ground, it (the CV industry) is very strong. The economy is set to grow firmly as well. As a result, we see our segment, which is closely tied together, continuing to grow. We are actually quite confident of continued growth in the segment.”

From one up cycle to another, the CV industry typically grows 1.2-1.4 times in volume. However, the industry is not yet at the FY19 peak levels.

Therefore, in the FY25 down cycle, analysts expect that a moderation in demand for MHCVs would not be as sharp as a 25-30 per cent fall.

CV production was flat at 777,649 units from April to December in FY24, up only 4.3 per cent year-on-year (Y-o-Y), shows data from the Society of Indian Automobile Manufacturers (SIAM). Domestic sales grew by 2.3 per cent Y-o-Y in the same period to 699,507 units. Exports, however, declined from 60,950 units in April-December of FY23 to 50,778 units during the same period in FY24.

Axis Securities said in a report in February that the CV industry’s growth outlook will remain subdued in the near term. This is because of the high base of last year and the impact of general elections.

“However, long-term demand seems favourable, backed by a strong macroeconomic environment, healthy replacement demand (specifically passenger vehicles), good traction on infrastructure projects (higher allocation in the recent interim Budget), and improving freight demand,” said analysts at Axis Securities.