The commercial vehicle market volume is projected to increase by 7 to 10 percent in the next fiscal year. The development of e-commerce, back-to-school and office seasons, replacement demand, government infrastructure expenditure, and back-to-work scenarios would all contribute to the volume rise, according to rating agency ICRA.
However, it added that the growth will moderate from 24-26 percent in the current financial year.
The third quarter of the current fiscal year showed growth trends, according to ICRA, with wholesale dispatches reporting a growth of 16 percent on a year-over-year basis. This growth was fueled by replacement demand, an improvement in the macroeconomic environment, and strong traction in the underlying industries, including steel, cement, mining, automobiles, and e-commerce.
It was highlighted that freight rates were still holding steady and that this, together with good freight availability, was sustaining fleet operator viability.
Medium and heavy commercial vehicles (M&HCV), light commercial vehicles (LCV), and buses all had broad-based growth patterns in the third quarter and the nine months that concluded on December 31, 2022, ICRA informed.
"Sales in the domestic CV industry continue to be propelled by multiple tailwinds including replacement of ageing vehicles, pick-up in mining, infrastructure and construction activities, improvement in the overall macroeconomic environment and healthy fleet utilisation levels resulting in improved fleet operator viability," ICRA Assistant Vice President & Sector Head – Corporate Ratings Sruthi Thomas.
The increased capex spending of Rs 10 trillion in the Union Budget for 2023–24, which is further proof of the government's continuous emphasis on infrastructure development, bodes well for sustainable growth, particularly in the heavy truck category over the short term, she noted.
ICRA expects that the CV OEMs' financial performance will also improve, driven by lower operating costs and a reduction in commodity prices. As a result, the combined operating profit margin of CV OEMs is anticipated to increase to 6-7 percent in FY2023 and further in the following fiscal year.
"This in turn, will support the gradual improvement in their credit metrics as well. In terms of the investment outlay, while CV OEMs have limited plans for capacity expansion over the near term, investments in new product development, electric and other alternative fuel vehicles, and tightening emission norms, etc. would continue," Thomas said.
