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July 01, 2018

Sector Report: Commercial Vehicles

This report is available to users in India for ₹40,000 + applicable taxes

 

Table of Contents

 

  • Summary
  • Short-term demand
  • Long-term demand
  • Competition & players dynamics
  • MHCV demand framework
  • LCV demand framework
  • Bus demand framework
  • Cost variables
  • Margins and Returns
  • Regulations

 

Summary

 

Goods carriers to show robust growth; buses to revive in fiscal 2019

 

CRISIL Research expects domestic commercial vehicle (CV) sales to rise ~12% in fiscal2019 as:

  • Sales of medium and heavy commercial vehicles (MHCV) in 2018-19 are expected to grow ~8% over a high base
    • Awarding of contracts by the National Highways Authority of India, the nodal agency for road construction, rose 70% to around 7,400 km in fiscal 2018, much of which will come up for execution in fiscal 2019. Thegovernment also plans to expedite all road construction by December 2018.
    • With construction being highly labour intensive, the government is expected to push construction projects in the pre-election year.
    • The government is likely to focus on major river linking projects in its irrigation thrust; housing construction under Pradhan Mantri Awas Yojna; and LPG cylinder distribution under the Pradhan Mantri Ujjwala Yojana .These schemes will also boost demand for CVs.
    • GDP growth is expected to pick up as negative impacts of demonetisation and GST implementation fade. Industrial GDP is expected to rise 6.9% in fiscal 2019 compared with 4.8% growth in fiscal 2018.
  • Factors limiting MHCV demand in fiscal 2019 would be any leniency in the implementation of ban on overloading in north India and fleet operators being unable to pass on the rise in fuel prices. Replacement demand is not expectedto be incrementally positive. However, some large fleet operators are expected to start replacing their vehicles in the fourth quarter to avoid likely price rise once the BS VI norms are implemented in April 2020.
  • CRISIL Research expects light commercial vehicles (LCVs) sales to grow ~16% in fiscal 2019 aided by an improvement in private consumption (growth of private final consumption expenditure, an economic indicator, is seenat 7.6% compared with 6.1% in fiscal 2018). Expected normal monsoon is likely to continue to aid rural consumption and demand for small commercial vehicles (SCVs), especially pickups, which are used to move the agriculturalproduce. Moreover, improved consumption in the urban areas is expected to drive demand for sub-1-tonne segment. Replacement demand, too, is expected to be incrementally positive during the fiscal.
  • Bus demand is likely to see a robust ~11% growth aided by a revival in most of the end-use sectors (especially state transport undertakings, or STUs, and schools) over a low base of fiscal 2018.