Commercial Vehicle Industry to show positive signs of growth in FY’18
Published On Apr 13, 2017
The commercial vehicles industry has been hit hard following Apex Court order to ban BS-III vehicles starting April 1st. About 97,000 units of such vehicles were left stranded that valued at Rs. 11,600 crore. Though steep discounts were made in the last three days of March, manufacturers still have 40,000-50,000 of unsold inventory till date. As per reports, out of this unsold stock, the Tata Motors owns about half while the remaining is shared between Mahindra & Mahindra, Ashok Leyland.
So how much time the industry needs to roll-back on growth trajectory? According to ICRA Ltd, the credit rating agency in India, this is just a temporary phase and the industry will recover soon from this negative upshots. The industry after sometime will show growth sign and it is expected to grow at 6-8 percent by fiscal year 2018.
The Union Budget 2017-2018 focused on strengthening the infrastructure, especially in the rural sectors. Also the implementation of the decision to modernize fleet or the scrappage program and increased demand from e-commerce logistics and other consumption driven sectors would further cement the growth of commercial vehicle segment.
However, the report also says that first quarter of the FY18 would likely to get weak response as an aftermath of the pre-buying done immediately after the BS-III ban. Moreover, the possibility of GST implementation would further force the fleet operators to hold back their investment as well as the manufacturers who would prefer aligning their inventory levels to the new tax regime.
So is there any way out? The possibility manufacturers are searching is that of export of BS-III vehicles, as of now. Despite of various challenges in the select African markets, restriction on financing model in various countries and the new import duties levied in Sri Lanka, the CV exports has increased by 7 percent in FY2017. Moreover, OEMs are always in search for expanding their market reach in Asian, Middle Eastern and African countries. They have fortified their brand image in countries Bangladesh and Nepal. So this could be a good exit point for the current unsold inventory.
Furthermore, the report says that development of new products, technology upgradation and dealing with portfolio gaps will encourage investment. Icra estimates that over the medium term, approximately Rs.31-33 billion annually is expected to be invested by OEMs.
Earlier, the domestic market was badly hit after November 2016 demonetization that put a check on road logistic sector which is heavily dependent on cash transactions. So fact of the matter is that the industry will need time to recover and until and unless these bottlenecks are successfully dealt with, there will be no sign of growth.
