Another high growth year awaits the medium, heavy vehicle sector

The April 2015 to February 2016 growth was at over 30%

Medium and heavy commercial vehicle manufacturers, including Tata Motors and Ashok Leyland, have had a great run this year, posting a high double digit growth to outperform other segments of the automobile industry. The high base, following a 30% growth in April-February period of the current year, one may think, will lead of a lower growth in the next year beginning April.

But 2016-17 is set to be another year of high double-digit growth, thanks to the Bharat Stage IV (BS-IV) emission norm for commercial vehicles that kicks in from April 2017. A BS-IV compliant medium and heavy vehicle (M&HCV) will come with a price increase of at least Rs 100,000, triggering many buyers to advance purchases and leading to a strong sales growth.

 

"Because BS-IV is coming in April 2017, one can legitimately buy a March 2017 (or earlier) produced BS-III vehicle and run it for next 10-15 years. We are expecting a lot of purchase advancement in the second half of next year. People who need trucks in 2017 will buy in 2016 because BS-III to BS-IV is a huge cost increase, at least a lakh of rupees. The chasis marking has to be before March 31, 2017, and it can be legitimately registered," said Ravindra Pisharody, executive director (Commercial Vehicles) at Tata Motors, the largest player in domestic M&HCV market.

The company's M&HCV sales have grown by 23% in April-February period. Competitor Ashok Leyland's sales have growth by 43% in the same period. The 30% growth posted by the industry is much higher than the growth of 7.5% reported in passenger vehicle sales and growth of 2.29% reported by the two wheeler industry. FY16 is a year of sales recovery for the M&HCV segment, triggered by replacement demand from fleet owners.

Vinod Aggarwal, chief executive officer of Volvo Eicher Commercial Vehicles, said those who have plans to buy in middle of 2017-18 can bring forward purchases by 5-6 months to avoid paying the higher price. "We will get an idea of this trend six months from now," he added.

Pisharody explained that while the cargo segment of M&HCV has been growing for six quarters now, the tipper segment has only started growing from last October. "Infrastructure spend has started and mining is picking up. Now cement and steel needs to be transported. These sectors were lagging earlier", he said.