Temporary liquidity blip, CV growth
CV growth will largely be driven by a pick-up in infrastructure sector and stable demand from core freight-intensive sectors such as cement, steel, automobiles, and EXIM trade.
New Delhi: Credit rating agency, ICRA in its year end assessment on Monday said that commercial vehicle (CV) segment is expected to grow despite the liquidity crunch and decline in profitability from fleet operators.
According to the report, tightened financial scenario will have a near term impact on CVs and Small Fleet Operators (SFOs) with relatively weak credit profile will have biggest impact.
However, once the liquidity scenario improves, CV growth will largely be driven by a pick-up in infrastructure sector and stable demand from core freight-intensive sectors such as cement, steel, automobiles, and EXIM trade.
M&HCV (Truck) demand has not been affected by revision in axle load carrying norms and is estimated to grow around 18-20 per cent in terms of volume in FY18-19.
The demand is expected to witness a healthy growth in FY20 even after implementation of BS-VI emission norms. For ICVs and LCV (Trucks), growth has been well supported by healthy demand from consumption-driven sector as well as replacement cycle.
While LCVs are on structural uptrend, the tightening of financing environment could derail the growth momentum in the near-term. However, segment is expected to grow by upto 20 per cent in FY19.
Buses are estimated to register 12-14 per cent growth aided by replacement-led demand following a year of sharp contraction in bus sales.
Moreover, higher demand in CV segment will lead to an improvement in earnings which will allow companies to maintain their credit profile.
ICRA expects that, in addition to capacity augmentation, CV manufacturers would invest in multiple avenues such as new product development, addressing portfolio gaps, technology up-gradation related to next level of emission norms. They will also make investments in sales network expansion.
Accordingly, CV OEMs are expected to spend about Rs. 50-60 billion annually.