INDIA REPORT
A favorable mix of factors is propelling demand for commercial vehicles to their best-ever pre-covid-19 volumes in India. Even though the CV segment has not reached its 2018 peak, it is expected to grow by double digits in the current fiscal year.
This growth is based on healthy demand and a relatively low base last year. While the sales are in green for all the major OEMs, market leader Tata Motors has reported year-over-year drop of 3%.
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The positive growth trends were seen across the three sub-segments – M&HCV, LCV and passenger carriers. Each of these segments reported robust growth in production in Q2 as well as H1 FY23. However, headwinds such as increasing fuel prices, the evolving geopolitical situation, and higher interest remain, they are not expected to create major roadblocks to domestic CV sales
The production spike was aided by replacement demand, increased government spending on growth sectors like infrastructure, back-to-office and school situations, and increased e-commerce demand. Further, the stability in freight rates is also leading to greater fleet viability for CV fleet operators.
Holdover of new purchases over the past 2-3 years because of a multitude of factors like revised axle-load norms, macroeconomic slowdown, COVID-19, etc. had resulted in significant ageing of the in-service population. In FY22, the average age of M&HCVs and LCVs was estimated at about 10 and 5.5 years, respectively, at historic highs.
Additionally, many organizations are increasingly mandating fleet operators to deploy cleaner, newer, and technologically superior vehicles. This would also propel the replacement demand. Hence, we believe replacement demand will play a key role in the higher production of MHCVs.
On the other hand, the LCV segment would continue to grow banking on the growing e-commerce and agri sector. The LCV truck segment will continue its growth story. Increased requirements for last-mile transport, especially in e-commerce, will drive the demand in this segment. of tourism, reducing risk aversion towards public transport, would support volumes in the sector. PSR
Aditya Kondejkar is Research Analyst – South Asia Operations for Power Systems Research
