Despite improving indicators uncertainty around CV sales continues: Ind-Ra

The sales of domestic commercial vehicles (CVs) could take longer to recover than expected, despite the improving macro-economic indicators, the India Ratings and Research (Ind-Ra) said on Monday.

Accordingly, this is due to the spare capacities created in the system driven by the peak sales achieved during FY18-FY19 and implementation of revised axle load norms coupled with reduced fleet utilisation.

“While medium and heavy commercial vehicle (MHCV) sales are unlikely to recover before 4QFY22, that of the light commercial vehicles (LCVs) have started to recover as they provide the last mile connectivity and because of increased e-commerce activities,” the Ind-Ra said in a statement.

“Under MHCV, tipper trucks could see a demand coming from improving construction activities.”

As per the statement, Ind-Ra believes that MHCV sales could decline by 35-45 per cent year-on-year (YoY) in FY21, though LCV sales decline is likely to be contained within 20-25 per cent YoY.

In FY22, the industry could see sales growth in double digits, especially due to the low base of FY20-FY21.

Nevertheless, the industry could revive earlier if an assertive scrappage policy is introduced timely.

“During April-September 2020, the CV sales volumes declined 56 per cent YoY, with a steeper decline of 76 per cent recorded in MHCVs.”

According to Federation of Automobile Dealers Associations (FADA), the retail CV sales grew sequentially in November 2020; however, it remains far behind the average monthly sales recorded during FY19-FY20. Sales volume in November were down 31 per cent YoY.

Besides, the MHCV sub-segment, which was already grappling with the excess capacity created in the system post implementation of the revised axle load norms in July 2018 and peak sales achieved during FY18-FY19, suffered significantly with the onset of Covid-19 as economic activities reached an all-time low coupled with capex deferrals across sectors.

“The latest macro-economic indicators show a gradual improvement in economic activities, however, it is only likely to inch up the existing fleet utilisation.”

“While the incremental demand for vehicles would need a sharper recovery.”