Business EconomyPosted at: Aug 19 2022 8:06PM

New Delhi, August 19 (UNI) Indian commercial vehicle (CV) industry will witness a robust volume growth of 12-15% in FY2023, rating agency IRCA has said.

The industry has registered a healthy growth of 112% on a YoY basis in wholesale dispatches in Q1 FY2023 (albeit on a low base) and is expected to continue its growth trajectory, given the improvement in the macroeconomic environment, replacement cycle and healthy demand from the end-user industries.

The growth trends have continued into the current quarter also, with combined CV volumes of OEMs[1] growing by 87% in 4M FY2023, compared to the year-ago period.

On the flip side, though headwinds such as hardening of interest rates, elevated fuel prices, increasing vehicle prices to pass on the increase in commodity prices and geo-political issues may constrain the pace of recovery, the same is not expected to significantly slow down the momentum witnessed over the past couple of quarters.

The light commercial vehicles (LCV) segment started recovering earlier than the M&HCV segment, supported by healthy demand from e-commerce as well as from agricultural and allied sectors. However, the segment witnessed an 8% sequential dip in volumes in Q1 FY2023 as the pent-up demand tapered off and the base effect caught up, the agency said.

Recovery in the bus segment, which had remained elusive with the prolonged pandemic, set in finally from Q4 FY2022 onwards. In Q1 FY2023, the segment reported healthy volume growth of 258% on a YoY basis to 19,297 units, supported by the reopening of schools and offices and the gradual return to normalcy after the pandemic.

The growth drivers for the segment remain favourable with the gradual opening up of offices and educational institutions, while other pandemic-induced challenges like aversion to public transport are expected to stabilise gradually.

ICRA said it expected a growth of 60-65% in the segment in FY2023, albeit on a low base.

As per the ICRA research report on the commercial vehicle industry published in July 2022, the agency expects the CV book of financiers to grow by 7-9% in FY2023.

The overall financing environment would remain a key monitorable going forward, especially the trends in the asset quality of CV financiers, which would remain dependent on the ability of the borrowers to pass through the fuel cost and interest cost escalations adequately in the near term.

ICRA expects an improvement in the financial performance of CV OEMs over the near term, led by both volume and realisation growth, as the clout of factors constraining demand in the past couple of years continue to ease going forward. This is expected to support the gradual improvement in their credit metrics as well; however, the inflationary trends in input costs, and the ability of OEMs to pass on the same to customers without adversely affecting demand, would remain critical.

E-buses will witness healthy traction; account for 8-10% of new bus sales by FY2025, the agency said.

Kinjal Shah, Vice President and Co-Group Head, ICRA Ratings, said, “The growth trends in the CV industry have been largely secular in nature, but more pronounced in the goods carrier sub-segment. Within goods carriers, growth in the medium and heavy commercial vehicles (M&HCV) sub-segment has been spurred by demand from the steel, cement and mining industries and a pick-up in economic activity, as the challenges related to the pandemic abated. This is expected to continue over the medium term, and ICRA expects volume growth of 15-20% for M&HCV (trucks) in FY2023."

"Within M&HCV (trucks), demand for tippers would continue to be supported by the pick-up in construction activity, while that for haulage trucks would be dependent on the general macroeconomic activity," Shah said.
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