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The domestic commercial vehicle (CV) industry is estimated to see its volumes grow by 7-10% in FY24E, following a growth of 24-26% in FY23E, according to rating agency ICRA. The increase in volumes is on the back of Indian government’s thrust on infrastructure development, rising construction activity and boost in e-commerce. The rating agency has retained a stable outlook on the domestic CV industry.
The growth trends continued to be broad-based across all the three sub-segments — medium & heavy commercial vehicles (M&HCV), light commercial vehicles (LCV), and buses, in Q3 as well as 9MFY23. The wholesale dispatches of commercial vehicles witnessed a growth of 16% YoY, helped by replacement demand, improvement in economic activity, and strong demand from industries such as steel, cement, mining, automobiles, and e-commerce.
The M&HCV (Truck) segment witnessed rise in volumes to 77,291 units, a growth of 28% YoY Q3FY23, being the ninth consecutive quarter of double-digit year-on-year (YoY) growth. ICRA expects the segment’s volumes to continue to grow at a healthy rate of 8-10% in FY24E after increasing by 25-30% in FY23E. The quarterly volumes for the segment have crossed pre-Covid levels, although the total number of units dispatched have not surpassed the industry highs of close to one lakh units that was witnessed in Q4FY19.
Meanwhile, the scope for growth in LCV segment also remain largely favourable, driven by rising need for last mile transportation from the e-commerce sector, while demand from the agricultural and allied sectors would remain dependent on the stability of rural cash flows. However, the pace of growth is likely to decrease to 4-6% in FY24E from 15-17% in FY23E due to higher base effect.
In addition, passenger carrier segment such as the bus segment has seen a healthy demand since the fourth quarter of fiscal 2021 with the re-opening of offices, schools and educational institutions. The volumes reported in each of the three quarters of the current fiscal stood at 16,000-19,000 units and it has finally reverted to pre-Covid levels, even though the numbers are much lower than the industry highs of about 28,000 units witnessed in Q4FY19. ICRA expects volume growth of 120-130% in FY23 due to low base. Further, the government’s notification of scrapping of older government vehicles is expected to drive replacement demand from State Road Transport Undertakings in FY2024, supporting growth of 12-15% on an overall basis, noted the rating agency.
“ICRA expects the financial performance of the CV OEMs to improve, aided by the better operating leverage and the easing commodity prices,” said Sruthi Thomas, Assistant Vice President & Sector Head – Corporate Ratings, ICRA Limited. She added aggregate operating profit margin of CV OEMs is expected to revive to 6-7% in FY23E that would improve the credit profile of CV OEMs.
Thomas further said that capacity expansion by CV OEMs in the near term is limited, though, investments in new product development, electric and other alternative fuel vehicles, and tightening emission norms, etc. would continue.