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CV Industry to Revive from Second Half of FY17, Says ICRA

Published On Sep 05, 2016By Lisa Pradhan

A fall in prices of Medium and Heavy Commercial Vehicles (M&HCVs) in the beginning of the second quarter of fiscal year 2017 has raised a cause of concern among stakeholders of the commercial vehicle industry. However, according to ICRA, an Indian credit rating agency, the industry may witness a growth from the second half of this financial year, thanks to several encouraging factors, most essentially, the anticipated pre-buying before BS-IV emission norms.

ICRA perdicts that the industry is going to revive soon, predictably in the second half of this fiscal year. The major factor will be the pre-buying spree ahead of the BS-IV emission norms. Revival of the construction and mining segment after the monsoon season is another reason that may lead to a surge in sales. Plus, a good monsoon leading to recovery of consumer goods and the addition in purchasing power thanks to the implementation of the 7th pay commission will increase the demand for trucks. Also, stricter overloading policies as per government’s proposal that brings a truck’s load carrying capacities in line with rated payloads can help revive commercial vehicle (CV) sales.

Throwing light on the current scenario, Subrata Ray, Senior Group Vice President at ICRA ratings, said, “Given the weak industrial activity and seasonal impact (on account of monsoon), the demand for CVs is likely to be subdued in the near-term. In addition, the growth in percentage terms would also be influenced by high-base effect as sales in Q2 FY 2016 benefitted from pre-buying due to the implementation of ABS from October 2015 onwards.”

CVs had depicted positive growth since the past few years, following a lull period. In FY15, M&HCV segment grew strongly by 16.1 percent YoY despite poor monsoon and elimination of the reduction in excise duty benefits. In FY16, M&HCV witnessed a strong and steady rise fueled by constant replacement demand and initial fleet expansion by fleet owners due to an optimistic CV market. The CV industry grew by 12 percent and the M&HCV segment displayed a double digit growth of 30 percent.

Yet, demand for M&HCVs showed a gradual decline and the latest Q1 reports of leading domestic CV makers are dismal, as the M&HCV segment reflects a meagre 1.9 percent growth in June 2016 and a decline of 7.6 percent in July 2016 on YoY basis.

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