Heavy Commercial Vehicle sales veer off

The sharp decline in medium and heavy Commercial Vehicle sales in November was most glaring compared to other auto segments.

The anaemic growth seen in passenger vehicle sales over the last couple of months is now spreading to Commercial Vehicle (CVs).

Heavy commercial vehicle sales veer offC

The sharp decline in medium and heavy commercial vehicle (M&HCV) sales in November was most glaring compared to other auto segments. Ashok Leyland Ltd’s volumes fell by 18% year-on-year, while those of Tata Motors Ltd contracted 24% year-on-year. Combined with sales of Eicher Motors Ltd, and Mahindra and Mahindra Ltd, M&HCV sales fell 14.6%. The sudden drop is after a strong double-digit growth until October.

According to Bharat Gianani, analyst at Sharekhan Ltd, “M&HCV sales dropped due to the liquidity crunch and impact of higher axle load norms, which led to capacity increase in the system.” This led to volatility in freight rates, at a time when fuel prices were spiralling. To add to this, interest rates were on the rise; and the non-banking financial companies’ crisis curtailed lending to the sector.

Fortunately, the sales drop in M&HCVs was offset partially by growth in light commercial vehicle (LCV) sales. Data from the above-mentioned four CV manufacturers shows a 9.5% year-on-year growth in LCV sales. Smaller vehicle preference for e-commerce, rural transportation and also the last-mile connectivity aided growth in LCVs.

Some analysts reckon that manufacturers have resorted to inventory correction on weak demand. But the slight improvement in sales during the last couple of weeks when fuel prices started softening, has led the Street to believe that it could be a temporary glitch. A report by HDFC Securities Ltd says that the underlying demand for movement of goods should continue to be strong on the back of mining and infrastructure activity.

But fleet operators are more pessimistic. November data from the Indian Foundation for Research and Transport Training shows a 5-6% drop in truck rentals on key routes, in spite of the festive period of Diwali. Cargo offerings from medium and small enterprises were also tepid, adds the report.

Given that the base has burgeoned in the last 12-18 months, growth rates could moderate from the recent double digits. Cyclicality is perhaps setting in, though a month’s drop in sales is barely enough to indicate a broad trend. Investors seem to be treading with caution, which is mirrored in the under performance of the BSE Auto index compared to the Sensex lately.

 Source: https://goo.gl/69EbE7