NBFC showdown continue to dull CV in May
Overall commercial vehicle(CV) domestic sales dropped by 10 per cent in May 2019 at 68,847 units compared to 76,517 units in the same month last year.
New Delhi: Three of the six major commercial vehicle(CV) manufacturers reported negative sales in the second month of the new financial year starting April 2019, says the data released by the Society of Indian Automobile Manufacturers (SIAM).
Overall, commercial vehicle sales in the domestic market dropped by 10 per cent in May 2019 at 68,847 units compared to 76,517 units in the same month year ago.
The strong dip of double digit heralds no hey days in the offing anytime soon. In fact, the scenario got worse in last month as the small truck business, which in the past months posted positive sales despite dull sales of heavy trucks, too declined by up to 4 per cent at 44,626 units in May 2019.
While medium and heavy commercial vehicle (M&HCV) sales continue to bear the brunt of revised axle norms, soft freight rates and contraction in industrial activities, light commercial vehicle (LCV) volumes showed anemic growth due to the lingering liquidity shortage and subdued rural demand.
Albeit monetary easing by total of 50 bps from RBI in February and April 2019, the NBFCs, which are the prime source of financing to LCVs, continued to remain cautious in lending since the debacle of their key financier IL&FS last year. These shadow banks have shifted their focus on collection rather than disbursal and that’s what hurting the buying sentiments of small trucks customers, experts noted.
“NBFC’s are still under credit freeze. For them the cost of raising fund still remains elevated and they are not finding it easy to raise money at a cheaper rate. Now if this situation persists, naturally they (NBFCs) will continue to lend money to the end customers at a relatively higher rate,” Devendra Pant, Chief Economist and Head Public Finance, Ind-Ra told ETAuto.
What’s more? The slowdown in the economy that happened predominantly due to poor performance of agriculture and manufacturing sector pulled the demand of trucks down in the rural pockets such as Rajasthan, Uttar Pradesh, Madhya Pradesh and Bihar. During March quarter of FY’19, the annual GDP fell to 6.8 per cent from 7.2 per cent that further added to the demand squeeze.
“Besides financial crunch, the overall truck sales suffered slowdown from core rural areas majorly due to drop in economic activities. Plus, there was some after effect of general elections as well, which combined with other factors prevented the addition of new fleets for both small and large fleet operators,” said Shamsher Dewan, Vice President & Sector Head – Corporate Ratings of the rating agency ICRA Ltd.
If we look at company wise performance, the segment leader Tata Motors saw the sharp fall of 20 per cent in domestic sales last month at 27,792 units. The company, which is also the leader in LCV market, witnessed a slump of 2 per cent in I&LCV sales at 4,043 units due to slowdown in discretionary consumption in the recent months.
“SCV Cargo and pickup segment demand was also lower by 18 per cent as distress in the agriculture sector brought down rural consumption. We are expecting an improvement in the economic conditions in the coming months and look forward to an improved buying sentiment,” said Girish Wagh, President, Commercial Vehicles Business Unit, Tata Motors.
Mahindra and Mahindra (M&M), the second largest player of the sub-segment, also posted 3 per cent decline in sales of LCV with gross vehicle weight (GVW) of less than 3.5 tonne vehicles at 16321 units in May 2019 against 16,763 units in May 2018. This category constitutes over 91 per cent of the M&M’s overall CV space. Company’s domestic sales also witnessed a 5 per cent drop at 17,879 units last month.
Maruti Suzuki and SML Isuzu, not so significant players were the only in green with growth of 31 per cent and 17.23 per cent respectively.
However, to overcome the long dry sales season, companies are betting high on pre-buying which they anticipate will come into play much before the implementation of new BS VI regulation norm.
Experts expect that from Q2 of ongoing financial year, fleet operators will begin to register BS IV vehicles in order to manage their fleet strength, that will ultimately start improving the demand outlook from the second half of FY’20.
Domestic sales of major CV players in May 2019
|OEMs||May 2019||% Y-O-Y Growth change|
|Mahindra & Mahindra||17,879||-4.64|