Indian commercial vehicle industry analysis and trend forecast

Industry Overview

For any growing market, sales forecast of any commodity or service is always quite promising unless the status quo is somehow disrupted. The same goes for India as the world's fastest-growing large economy presents impressive growth prospects. Industry reports indicate that with deep structural reforms being consistently introduced including the Good and Services Tax (GST), India is expected to continue to grow at the rate of high single-digit number over the course of the next 15 to 20 years and it is being predicted that considering the current growth rate, by the year 2025 Indian economy will likely hit USD 5 trillion evaluation accounting for 5% of global GDP. India's manufacturing sector will play a vital role in achieving this objective and therefore presents great growth opportunities for the country’s commercial vehicle industry.

The commercial vehicle market witnessed a good run in the 2018 financial year. For the 2017-2018 financial year, the commercial vehicle industry recorded a 20% growth and in the first five months of 2019, the commercial vehicle market clocked an overwhelming 40% growth as compared to that of the same period in 2018.

Production 

The commercial vehicle industry did suffer from the fallout of structural reforms introduced in recent months. As of June 2019, the overall production of commercial vehicles has dropped by 23.42% as compared to that of last year.

Isuzu Motors witnessed a positive growth of 15.64% and as expected India's largest automaker, Maruti Suzuki recorded a 47.03% growth in production of both passengers as well as goods transport vehicles.

M & HCV

The medium and heavy commercial vehicles (M&HCV) production dropped by 4.20% for passenger vehicles in the same period. It was, however, the goods and commodities segment which experienced the most impact as the production dropped by 22.88%. The total drop in production of medium and heavy commercial vehicles stands at 20.70%

LCV

The production of commercial vehicles built for passenger transport applications dropped by 5.09% for light commercial vehicles (LCV) and those of goods and commodities dropped by 27.18. 

Domestic Sales

It is also worth noting that the decline of commercial vehicle production still could not manage to counter the drop in domestic sales of CVs. As of June 2019, the domestic sales of commercial vehicles experienced an overall decline of 12.31%. 

M & HCV 

The medium and heavy commercial vehicle segment took the biggest hit in terms of domestic sales and even with reduced production, the total domestic sales of M&HCV dropped by 16.46%. 

LCV

Like medium and heavy commercial vehicles, LCVs performed fairly well when it comes to domestic sales and only experienced are 9.80% decrease in the overall domestic sales growth

Exports 

In comparison to domestic sales, the exports of Indian CVs dropped even further and recorded a 48.77% decrease in growth. This can be considered a testament to the fact that Indian commercial vehicles segment is driven primarily by a dominant domestic demand which displays a borderline anti-globalization characteristic. The overall

SML Isuzu managed to clock in an impressive growth of 1450% which was followed by that of Maruti Suzuki which recorded a 110.92% growth. With exception to Volvo and Piaggio vehicles Private LTD which did not face any fluctuation in export demand every other manufacturer experienced a decline in exports.

MHCV

The medium and heavy passenger vehicle segment was the only one to perform well in terms of exports and managed to grow by 16.16% however with the drop in exports of goods and commodities segment the total decline on exports of M & HCV stands at 54.61%.

LCV

The exports of LCVs dropped by a whopping 43.79% but the segment managed to perform relatively well as compared to the medium and heavy commercial vehicles segment.

Goods carrier/passenger carrier trend

The majority market share in the overall good carrier/passenger carrier segment is dominated by Tata Motors LTD and Mahindra and Mahindra LTD.

 As a segment leader, Tata celebrates the maximum market share in terms of overall domestic commercial vehicle sales in the country. A major contributing factor to Tata’s dominance in the commercial segment can be attributed to its constant introduction of new models that feature completely redesigned or entirely new vehicle architectures. The company recently introduced its ‘Intra’ compact truck with prices starting from Rs 5.35 lacs (ex-showroom, New Delhi). The small commercial vehicle is based on a completely new platform and will be placed between Ace mini pickup and Yodha full-size pickup truck in the company’s SCV lineup.

• Total Market Share

The company’s overall domestic sales market share stands at 46.46%

• M & HCV

The manufacturer's M&HCV segment enjoys a greater 56.5% market share when it comes to overall domestic sales

• LCV

The company’s overall domestic sales market share stands at 46.46% out of which Tata light commercial vehicle sales contribute for 46.4% market share in its respective segment.

Following Tata’s lead in the space, Mahindra and Mahindra with the second-highest market share in terms of overall domestic sales of commercial vehicles account for 23.17% of all CVs sold in the country. This market share constitutes of a 41% stake in SCV & Pick Up commercial vehicles space, followed by a 4.9% share in LCV space and a 4% share in M&HCV space. Finally, Ashok Leyland LTD with 17.08% market share along with Mahindra and Mahindra and Tata Motors LTD accounts for over two-thirds of commercial vehicle market share in the country.

Government Regulations and Market Trends

As mentioned before, so far the Indian commercial vehicle industry has experienced rapid growth but this might drop to a modest pace quite soon. This restraint in expansion comes as a courtesy of stricter emission standards which will be imposed on the Indian commercial vehicle industry starting from April next year. Commercial vehicle manufacturers are expecting high sales during the second half of FY20 before the BS6 vehicles are introduced in 2020 which will help maintain the industry's expected double-digit growth rate. However, the country is experiencing an unexpected slow rate of industrial activity and consumption which might result in the moderation of commercial vehicle market growth and might even drop the pace down to single digits. The commercial vehicle industry might also experience a calibration of its stock as India moves towards adoption of BS6 norms from BS4. Even though the retail growth is in double digits reduction in manufacturing output, consumption and infrastructure projects is having a compound effect on the demand for commercial vehicles.

The capacity of commercial vehicles was increased by 15 to 20% after the implementation of axle load norms in September last year and it is still in the process of being absorbed. The Non-Banking Financial Companies in the country are also not in a very stable state and happen to be facing tight liquidity challenges. These companies finance more than half of new commercial vehicle sales and might result in hampering the financing of new trucks. Out of all segments, sales of the light commercial vehicle which happen to be one of the fastest-growing segment in the Indian commercial vehicle industry is primarily dependent on E-Commerce and consumption-driven factors. The moderation in the growth of domestic Light Commercial Vehicle sales might be the result of consumption slowdown or even fallout from irregular monsoons. Industry analysts reason that the pace of domestic sales growth of LCVs might even moderate even further in the coming months.

It is also expected that the vehicle prices might increase by 10 to 12% by April next year as a result of the adoption of the new emissions standards. This might result in substantial pre-buying of commercial vehicles in H2 of FY20 as long as the conditions of NBFCs improve and the tight liquidation crisis is resolved. Some speculations also suggest that the domestic commercial vehicle industry will only experience a 79% growth for FY20, as the government has not offered any clarity on the proposed scrappage policy. As contractors will soon receive payments, we expect that recovery in demand from the construction sector will result in an improvement of demand environment for commercial vehicles.