INDIAN AUTOMOBILE INDUSTRY – Commercial Vehicles

Low base because of demonetisation continues to drive strong growth in CV sales in January 2018
ICRA RESEARCH SERVICES
ICRA Research Services | Monthly Update February 2018

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Anjan Deb Ghosh
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aghosh@icraindia.com

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Subrata Ray
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Domestic Volume Growth Trends in January 2018:

Domestic CV sales grew by 39.7% on account of low base of Jan-2017

 Demonetisation moved had significantly impacted CV sales between Dec-2016 to Feb-2017

 M&HCV (Truck) sales expanded by 23% on YoY basis on back of low base
 LCV (Trucks) continued to register healthy growth (up 63%) on YoY basis
 Bus sales grew by just 3.2% in January 2018 because of weak order inflows from SRTUs

February 13, 2018

ICRA Research Services

Summary

Industry Sales Trends – January 2018

Low base because of demonetization as well as strong demand in select segments continues to drive CV demand
The domestic Commercial Vehicle (CV) industry led by truck segment has been on a recovery phase since the beginning of Q2 FY 2018. In 10m FY 2018, the domestic CV sales have
grown by 17.9% primarily driven by healthy growth in the LCV (Truck) and M&HCV (Truck) segment, while bus sales have contracted sharply on back of weak SRTU orders. The stellar
volume growth during the last few months is also driven by inventory clearance by OEMs ahead of mandatory roll-out of HVAC/blower in heavy-duty trucks from January 2018.
Consequently, there could be sequential moderation in volumes in Feb-18 on account of pre-buying activity because of BS-IV norms in February and March 2017.

Within the CV space, the M&HCV (Truck) has grown by 17.3% in volume terms aided by pent-up demand post GST implementation, stricter implementation of overloading norms as
well as healthy demand for tippers (from construction sector) and HCVs (from select industries like car carriers, petroleum products, container traffic). Likewise, the LCV (Truck)
segment has also witnessed a strong growth of 27.5% in volume terms driven by replacement cycle, improving financing environment and pick-up rural demand. While truck sales
have picked-up sharply, demand for bus has weakened considerably (down 16.7% YTD) owing to weak orders from both SRTUs and private segment. TML has gained market share in
LCV as well as M&HCV space aided by addressing gaps its product portfolio.

Exhibit 1: Trend in Domestic Commercial Vehicle Sales

Industry Volumes FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 10m FY 2017 10m FY2018
M&HCV Trucks 221,776 161,909 195,918 258,488 255,267 195,794 229,570
LCV Trucks 476,695 389,434 337,377 334,371 360,839 287,876 366,943
Buses 94,740 81,508 81,653 92,845 98,126 76,219 63,484
Total 793,211 632,851 614,948 685,704 714,232 559,889 659,997
Growth (%) – YoY
M&HCV Trucks -25.9% -27.0% 21.0% 31.9% (1.2%) 17.3%
LCV Trucks 15.9% -18.3% -13.4% -0.9% 7.9% 27.5%
Buses -4.1% -14.0% 0.2% 13.7% 5.7% (16.7%)
Total -2.0% -20.2% -2.8% 11.5% 4.2% 17.9%
Source: SIAM Data, ICRA research

Outlook: Domestic CV industry sales expected to recover post GST implementation

Having witnessed strong recovery over the past two quarters, ICRA estimates FY 2018 to end with a growth of 10-12% in volume sales. The increased thrust on infrastructure projects
as visible in the recent budget, higher demand from consumption-driven sectors and e-commerce logistic service providers, especially for LCVs and ICVs and potential implementation
of fleet modernization or scrappage program will continue to support demand for CVs into FY 2019. However, we expect the growth momentum would see some moderation,
especially in the M&HCV segment owing sizeable capacity addition, especially in tonnage terms during FY 2018. Accordingly, we expect M&HCV Trucks to register a growth of 2-4% in
volume terms in FY 2019. Nonetheless, if Government’s plans (although delayed) on phasing out old diesel vehicles through proposed vehicle modernization program materialize,
growth could be higher. ICRA believes that the LCV segment is on a structural uptrend and has witnessed swift recovery with improvement in liquidity situation. In the near-term,
replacement-led demand (following almost three years of declining sales) and expectation of stronger demand from consumption-driven sectors and E-commerce would remain key
growth drivers for the segment. Accordingly, ICRA expects the LCV (Truck) segment to register a growth of 9-11% in FY 2019. In the bus segment, the growth is expected to recover in
FY 2019 aided by expectation of replacement-led demand following a year of sharp contraction in bus sales.

ICRA Research Services

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