Commercial vehicle industry volumes to see 7-10 pc growth

According to rating agency Icra, the commercial vehicle market volume is anticipated to increase by 7 to 10% in the upcoming fiscal year. The expansion of e-commerce, back-to-school and office seasons, replacement demand, government infrastructure spending, and back-to-work scenarios would all contribute to the volume growth, it was underlined.

However, it added, the growth will slow from 24-26% in the current fiscal year.

Icra stated that the macroeconomic environment has improved, replacement demand has increased by 16% year over year, and the underlying industries such as steel, cement, mining, automobiles, and e-commerce have shown strong traction. These growth trends were evident in the third quarter of the current fiscal, according to wholesale dispatches.

It was highlighted that freight rates were still holding steady and that this, along with good freight availability, was sustaining fleet operator viability.

Medium and heavy commercial vehicles (M&HCV), light commercial vehicles (LCV), and buses all had broad-based growth patterns in the third quarter and the nine months that concluded on December 31, 2022, according to Icra.

Icra Assistant Vice President & Sector Head - Corporate Ratings Sruthi Thomas stated that "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.

The increased capex spending of Rs 10 trillion in the Union Budget for 2023–24, which is further proof of the government's continuous emphasis on infrastructure development, bodes well for sustainable growth, particularly in the heavy truck category over the short term, she noted.

Icra anticipates that the CV OEMs' financial performance will also improve, driven by lower operating costs and a reduction in commodity prices. As a result, the combined operating profit margin of CV OEMs is anticipated to increase to 6% in FY2023 and further in the following fiscal year.