The sales of commercial vehicles will reach the previous peak of close to 1 million units a year by FY24 aided by a rapid recovery in India’s economic activity levels and a resurgence in replacement demand after multiple muted years, according to a new report from Fitch Ratings.
The ratings agency expects CV sales to grow at a rate of 14-19% over the coming few years.
Apart from a better macroeconomic environment, the CV industry will also benefit from better availability of financing, the report noted.
Meanwhile, higher fuel prices will nudge fleet operators to replace their older vehicles with newer, more efficient ones.
“Most fleet operators chose to defer the purchase of new CVs in view of various challenges since 2018 that weighed on fleet utilisation rates and profitability,” noted analysts at Fitch led by Snehdeep Bohra. “This caused a stagnant population of active CVs since FY19. The average age of vehicles also rose to multi-year highs, which is typically associated with lower fuel efficiency.”
This will directly aid the business of companies like Tata Motors, Ashok Leyland, Eicher Motors and Mahindra and Mahindra, whose commercial vehicles businesses have languished since FY19.
The medium and heavy commercial vehicles (MHCV) segment was particularly hit hard by macroeconomic headwinds even before the pandemic struck. Now, the recovery in the segment is expected to be sharper as well.
“We expect volume in the MHCV segment – which typically exhibits a higher degree of cyclicality due to end-market exposure and higher dependence on financing – to recover by more than 20% y-o-y in FY23, faster than the broader CV industry,” the Fitch analysts said.
Meanwhile, the light commercial vehicles segment is forecasted to continue to perform well.
“We forecast LCV sales to rise by mid-teens in FY23. In addition to the broader economic growth, sales will also benefit from growing demand from the e-commerce sector and favourable rural demand prospects backed by normal rainfall in most parts of the country,” as per the report.