High fuel rates, easy loans and eased travel restrictions – which will drive CV sales to a million by Fy24


A recovery in medium and heavy CVs from multi-year lows, along with continued growth in light CV categories, will help overall CV volume reach nearly one million units by the fiscal year 24 – the level of the last cyclical peak recorded in fiscal year 2019, according to a new report.

India’s commercial vehicle (CV) sales volume is expected to grow in the mid-to-teens over the next few years after recovering 26% in the fiscal year ending March 2022, the service company said on Wednesday. financial Fitch Ratings in a report.

A recovery in medium and heavy CV (MHCV) from multi-year lows, along with continued growth in light CV (LCV) categories, will help overall CV volume reach nearly one million units by FY24 – the level of the last recorded cyclical peak in FY19, according to the report.

Growth in the passenger CV category, which has suffered a greater pandemic impact due to travel restrictions and the suspension of school and office trips, will also contribute to growth, despite its lower share of less than 15%. of the overall volume of resumes before the pandemic.

In the first six months of the 2022-2023 financial year, Indian automakers sold a total of 456,199 units, including 231,880 in the second quarter, according to data released by the Society of Indian Automobile Manufacturers (SIAM) earlier. in October.

SIAM Managing Director Rajesh Menon noted that the commercial vehicle segment has started to show trends of improving market demand. Reflecting on quarterly sales, Vinod Aggarwal, President of SIAM, added, “There is improvement seen across all segments in the second quarter of 2022-2023, compared to the prior year.” He also pointed to the recent increase in CNG fuel prices, rising repo rates and the Russian-Ukrainian conflict as concerns that could impact the market in the coming months.

Fitch also noted that replacement demand for the CV segment has remained subdued in recent years as multiple challenges have affected purchasing decisions, despite the increasing age of the fleet. These included system-wide excess capacity following revised axle load standards, increased vehicle costs following the adoption of stricter BS6 emission standards and lower availability of finance .

However, in its latest report, Fitch listed a series of factors likely to lead to a sustained recovery in the commercial vehicle segment. Here is an overview

A rapid recovery in India’s economic activity levels from the pandemic shock and the planned increase in infrastructure spending by the government will help sustain an improvement in fleet utilization rates, supporting the freight economy for operators. This should support the recovery of the replacement cycle, despite the pressure of high inflation and rising borrowing rates since the start of the Russian-Ukrainian war, according to the report.

He added that high fuel rates would also spur the replacement of older CVs with newer, more fuel-efficient vehicles, including those with compressed natural gas transmissions in smaller categories.

The easing of travel restrictions and the resumption of physical attendance at offices and schools will support a rapid volume recovery in the passenger (bus) segment of MHCVs after an outsized pandemic caused fiscal volume to 22 remained 70% below the FY19 pre-pandemic level. was 30% higher than sales volume for all of FY22.

“We believe increased loan disbursements by CV financiers will drive sales over the medium term. Improved earnings visibility for fleet operators, as well as manageable asset quality and access to finance for lenders, should underpin improved credit availability,” Fitch said.

Recovering levels of economic activity and increased infrastructure spending under the government budget have contributed to improving VC utilization rates. This is evident from rising freight rates and improved profitability for fleet operators since 1HFY22.

Fitch explained that most fleet operators have chosen to defer the purchase of new CVs, given various challenges since 2018 that have weighed on fleet utilization rates and profitability. This has led to a stagnation in the population of active CVs since FY19. “Average vehicle age has also reached multi-year highs, usually associated with low fuel consumption,” he said.

However, the factors mentioned above, along with improved availability of financing, have boosted buying sentiment in recent quarters, spurring a revival in replacement demand. This is despite rising cost of ownership due to higher fuel and commodity prices and higher borrowing rates after the start of the Russian-Ukrainian war, the rating agency noted.

“This should support sustained demand over the next few years. We estimate sales of around 500,000 units in deferred replacements from previous years, particularly given the poor fuel efficiency associated with an aging fleet,” he said. -he adds.

He credited the robust gains in sales share of compressed natural gas variants in the midsize and small categories, which offer better fuel cost efficiency than conventional diesel variants, for his view.

These variants contributed 40% of sales for Tata Motors – India’s top CV maker – in the mid-size category in FY22, up from 20% a year ago, he added.

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