India’s commercial vehicle (CV) sales are expected to grow up to 11 percent in the next fiscal, the third straight year of growth, according to the latest report by rating agency CRISIL. This increase in volume would be driven by medium and heavy commercial vehicles (MHCVs) and expected economic growth of around 6 percent.
Anuj Sethi, Senior Director, CRISIL Ratings, in a statement, said, “With strong demand prospects, we expect LCV (light commercial vehicle) sale volumes to grow 8-10 percent next fiscal, and cross pre-pandemic sale volumes. MHCV sale volumes will continue to grow faster than LCVs at 13-15 percent next fiscal, but are expected to exceed pre-pandemic sale volumes in fiscal 2025.”
Apart from higher sales volumes, operating profitability is likely to grow to a four-year high of 7-7.5 percent in the next fiscal from an estimated 5-6 percent in this fiscal (around 3.9 percent in the last fiscal). This would be largely driven by the increase of 2-5 percent in realisations as original equipment manufacturers (OEMs) comply with BS VI-Stage III norms, found the report.
Anil More, Associate Director, CRISIL Ratings, said, “Strong balance sheets and healthy liquidity helped offset profitability pressures ensuring the ‘Stable’ credit profile of CV manufacturers in the recent past."
The CRISIL Ratings study of four CV makers, which account for over 70 percent of the sector’s capacity, further added that LCVs account for nearly two-thirds of the sector’s volume, while MHCVs account for the rest. Buses are included in both the LCV and MHCV category.
“The expected improvement in operating profitability this and next fiscal, and only modest capital spending needs (given utilisation rate at approximately 70 percent) will ensure improvement in the key debt metrics, and keep credit profiles stable; these debt metrics were impacted during the pandemic years,” More added.
Increased allocation to infrastructure spending in the Union Budget for the next fiscal will also support demand, the analytical company stated. This follows strong volume growth of 31 percent and approximately 27 percent in the last fiscal and this fiscal, respectively, as demand bounced back on increased activity in sectors like roads, mining and real estate.
LCV and MHCVs are expected to register sales growth of nearly 27 percent and 40 percent respectively in this fiscal and last fiscal. While India’s strong infrastructure will continue to drive MHCV sales, LCV sales will be spurred because of increasing last-mile connectivity and stricter movement restrictions on MHCVs within city limits.
Demand for buses will continue to see good traction from educational institutions, stated the report, adding that implementation of the mandatory scrappage policy from April 2023 onwards for government-owned vehicles older than 15 years will also aid CV volume growth.
From its study, CRISIL expects interest coverage to improve up to three times in this fiscal and the next, from around 1.6 times in the last fiscal. It added that the ratio of net debt to earnings before interest, tax, depreciation and amortisation EBITDA is likely to grow 2.5 times in the next fiscal from nearly five times in the last fiscal.
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