The commercial vehicle industry volume is expected to grow in the range of 7-10% in the next financial year, rating agency ICRA said on Tuesday.
The growth will, however, moderate from 24-26% in the current financial year. ICRA noted that the growth trends were visible in third quarter of the current fiscal, with wholesale dispatches reporting a growth of 16% on a year-on-year basis, supported by replacement demand, improvement in the macroeconomic environment, and healthy traction in the underlying industries such as steel, cement, mining, automobiles, and e-commerce. Freight rates continued to hold up, which, coupled with healthy freight availability, is supporting fleet operator viability, it noted. The growth trends continued to be broad-based across all the three sub-segments -- medium & heavy commercial vehicles (M&HCV), light commercial vehicles (LCV), and buses, in the third quarter and nine months ended December 31, 2022, Icra said.
"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.
Furthermore, the continued thrust of the government on infrastructure development, as evidenced in the increased capex outlay of Rs 10 trillion in the Union Budget for 2023-24, would augur well for sustained growth, especially in the heavy truck segment over the near-term, she added.
ICRA also expects an improvement in the financial performance of the CV OEMs, led by the benefit of operating leverage and the easing commodity prices; accordingly, aggregate operating profit margin of CV OEMs is expected to revive to 6-7% in FY2023 and improve further in the next fiscal.
"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.