The commercial vehicle (CV) segment has been among the hardest-hit sectors due to the COVID-19 pandemic. The full upswing in demand across all segments is likely to take at least two to three quarters, analysts said, which will depend upon the speed of government spending.
But, being a heterogeneous sector, commercial vehicle is gradually seeing some green shoots in smaller segments such as pick-up and SCVs with the economic activities speeding up.
Within commercial vehicles, HCV segment continues to see a significant YoY decline - due to excess capacity, followed by relaxation of axle load norms, while construction/infra activities remain weak.
Meanwhile, LCVs/SCVs continue to do well on the increased requirements for last-mile logistics led by the e-commerce sector as well as the implementation of the hub and spoke model.
According to a Care Ratings report, retail sales of commercial vehicles rose 12.7 percent month-on-month in November.
Given the CV segment's performance, the CV financiers are also likely to see decent growth going ahead. Antique Stock Broking believes that among CV financiers, Cholamandalam Investment and Finance Company and Sundaram Finance have all characteristics to perform better while Shriram Transport and M&M Finance have a high dependency on the revival of the economy.
"Amongst CV financiers, good players will see decent growth and better profitability despite some elevation in asset quality but the others will see some difficulty in growing their book due to increase in asset quality concerns," Antique Stock Broking said in a note.
In a low environment demand, it is only the fittest NBFCs that can perform relatively better. Also, the inability of weaker competition to survive can create tailwinds for strong market share gains in future, it added.
“Cholamandalam Finance and Sundaram Finance have all the characteristics needed to perform better. Chola is our top pick in the CV Financing space, while we change our stance to Hold for Sundaram Finance due to recent stock performance which has led to slightly expensive valuations,” the broking house said.
Fortunes of Shriram are closely linked to the revival of the economy and M&M Finance's business model is highly dependent on rural capex cycle which is cyclical in nature, it said.
“Because of slow economy on account of the outbreak of a pandemic, asset quality issues have cropped up for these companies which shall take awhile till some revival is seen. We continue to maintain Hold on M&M Finance and change our stance to Hold for Shriram Transport due to recent stock performance,” the report said.
(Edited by : Jomy)
First Published: Dec 15, 2020 6:37 PM IST
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