Despite a good monsoon and the governments announcement of sprucing up infra investments during the year, analysts still see flattish or even negative growth in this segment for the whole fiscal. Demand is expected to pick up only in third quarter, or during the festive season.
The light commercial vehicle (LCV) segment is affected too. Both Tata Motors and ALL reported negative growth of 6.7% and 6%, respectively, in the LCV segment in the first quarter of the current fiscal. Ashok Leyland, which reported flat growth in the first two months of Q1, witnessed negative growth of 17.3% for the first time in June on its only LCV Dost. This is despite huge discounts and low EMIs that have failed to entice fleet owners, said SP Singh, senior fellow, Indian Foundation of Transport Research and Training, a research institute with a keen focus on the truck industry.
Yaresh Kothari, an analyst with Angel Broking, said that while the near-term environment continues to remain challenging for the sector, long-term structural growth drivers for the industry and easy availability of finance will remain intact.
According to the brokerage house, Tata Motors reported a 11.2% drop in its M&HCV segment for the quarter-ended June to 32,997 units compared to 37,151 units in the same period last fiscal. In the LCV segment, the company reported a decline of 6.7% to 83,500 units (89,483 units in Q1FY13). Similarly, Ashok Leyland reported a decline of 26.4% in the June quarter to 14,897 units as against 20,239 units sold in same quarter last fiscal while LCV Dost reported a 5.8% decline in Q1 to 6,824 units as against 7,248 units sold in same quarter last fiscal.
Surjit Arora of Prabhudas Lilladher said: "This is a tough time for CV manufacturers. The situation is not expected to improve even in the next quarter (July-September). The lack of demand in freight, fall in rentals and a slow pick-up in industrial activity have forced fleet-owners to postpone their purchasing decisions and this is despite discounts ranging between R50,000 and R3 lakh, depending upon the tonnaage of the vehicle. We see OEMs coming under margin pressure during the quarter as well in Q2 too.
Says Vishal Srivastav of Care Ratings, "The pressure would continue for a few more months. Customers have stopped discretionary spending due to a drop in freights, rentals and uncertainty over the economic growth despite the monsoon and likely infra spends. Even fleet-owners find it difficult to pass on the monthly increase in diesel prices as overall sentiment is weak."
According to him, OEMs will see pressure on LCV sales too as the overall negative sentiment has caught this segment too. "One cannot expect LCV segment to grow at the rate of the last two years as this segment base has gone to a higher size of 5.5-6 lakh units per annum. New products and overall buoyancy in the previous two years saw the LCV segment grow at 25% and 16%, respectively. However, given the challenging times and other factors coupled with good monsoon, we expect this segment to grow moderately at 4- 5% during the fiscal while M&HCV segment may report flattish or even negative growth."
With heavy discounts on sales and negative growth in both segments, OEMs will come under margin pressure during the quarter and they will have to try to bring down the inventory level and cut production to arrest pressure , he added.