The CV industry, the medium and heavy commercial vehicle segment (M&HCV) in particular, is still some time away from the previous peak volume despite strong and stable growth in vehicle sales over the past several months.
After peaking in FY19, CV sales fell sharply by 29 per cent in FY20, and 21 per cent in FY21. While the current fiscal saw the industry record strong growth in volumes, it will take some more time for the industry to reach its previous peak as the volume decline, which was caused by multiple factors, was massive.
Axle load norms
The CV industry slipped into a slowdown phase after the announcement of revised axle load norms in 2018. It came at a time when volumes were at their peak. The new norms led to the creation of at least 15-20 per cent excess capacity, especially in the M&HCV segment. This was followed by a sluggish freight scenario, the transition to BS VI, which led to higher acquisition costs for trucks, and the pandemic phase. So, the industry went through a bumpy ride from H2 of FY19 to H1 of FY21.
While the recovery began in H2 of FY21, the second wave of the pandemic caused some temporary disruption. However, the recovery in the post-second wave period has been strong despite the rise in the cost of trucks. The government’s aggressive push to revive the economy with massive spending on infrastructure development aided the CV industry’s recovery and the demand for trucks remained robust till now.
“After two consecutive years of severe disruptions, which saw the domestic CV industry shrinking by almost half (FY21 vs FY19), the industry grew by 26 per cent in FY22 over FY21. The growth in demand has been broad-based, across regions and segments,” says Girish Wagh, Executive Director, Tata Motors Ltd.
While M&HCV, I&LCV (intermediate & light commercial vehicles), and passenger segments grew by 104 per cent, 138 per cent, and 341 per cent respectively in Q1FY23, the September quarter also proved to be healthy for all categories, improved sentiments of fleet owners and economic activities..
The M&HCV industry reported a total volume of about 89,000 units during Q1 of FY19. In Q1 of this fiscal, volumes were at about 76,000 units. With strong growth in the September 2022 quarter by all leading players, the volume gap between the FY19 level and this fiscal is expected to narrow further.
“However, the FY23 volume numbers are not expected to reach the previous peak,” states Wagh.
Gopal Mahadevan, Director & CFO, Ashok Leyland, pointed out that excess capacity created by the axle load norms has been consumed. September quarter volumes were good on the back of general economic development. So, we see stable growth and there is a hope that the overall volumes would reach close to pre-axle load norms by the end of this fiscal if the current trend continues.
The demand outlook remains favourable for the industry in FY23 on the back of a strong drive on infrastructure spending by the Government. While sectors such as e-commerce, FMCG, FMCD, construction, mining, steel, and the cement will continue to drive demand in the M&HCV and I&LCV categories, the SCV (small commercial vehicle) segment is expected to grow on the back of resilient demand from the agriculture, dairy and e-commerce sectors. Also, recovery in buses to continue helped by the reopening of offices and schools and increased activity in the tourism sector. But, there are concerns too due to fuel price hike and high interest rates.