Although sales of medium and heavy commercial vehicles (M&HCV) bounced back in July, muted freight volumes and higher compliance costs for fleet owners post the rollout of the Goods and Services Tax (GST) on July 1, may keep sales under pressure for the next six to seven months. Analysts point out that retail sales have been subdued in July. “We reckon that domestic MHCV industry volumes increased by double digits y-o-y in July 2017 but we believe this was stock push to dealers while retail volumes were very weak,” analysts at Kotak Institutional Equities wrote. Navin Gupta, general secretary all India Motor Transport Congress (AIMTC) freight volumes have come off by as much as 70-80% post July 1. “Most mid-sized and small fleet owners are hard pressed to pay their monthly installments and this will impact CV sales,” Gupta said. The lower volumes are a result of a substantial reduction in despatches both from the agriculture and manufacturing sectors in the last few months. In Q1FY18, volumes in the M&HCV segment had fallen by 31.82% y-o-y to 48,493 units due to uncertainty among fleet owners regarding the impact of GST.
Moreover, the inventory of BS 4 vehicles at dealerships had decreased significantly due to the non-availability of spare parts and also lack of demand. In July, however, volumes have increased with both Ashok Leyland and Tata Motors both registering a 10% y-o-y increase in M&HCV volumes. Nonetheless, dealers of Ashok Leyland and Tata motors, retail sales in July have not recovered yet and fleet owners are not satisfied with the performance of some of BS 4 heavy duty trucks as a result the demand and prices of the BS 3 vehicles manufactured after 2012 have increased by 25-30%. “Retail sales are still very low and customers are facing problems with new BS 4 vehicles. Growth will return once these issues are sorted out,” an industry expert said.
“Dealer inventory remains low (7 to 10 days), mostly transit inventory. All sales to dealers are on cash and carry basis. ALL’s inventory is around 9,000 units (1 month of sales). Warranty on new BS IV trucks has been extended from 18 to 48 months,” said, Gopal Mahadevan, chief financial officer, Ashok Leyland in conference call with analysts. The removal of check posts at state borders has reduced the time taken to transport goods across the country by 10-15%. Most industry executives and analysts had expected a growth of around 7-9% in the M&HCV segment in FY 18. Ashok Leyland had also projected a 10% growth in the M&HCV volumes.
“Due to 15%-20% lower arrival of fruits and vegetables in APMCs and almost 20% drop in factory dispatches on account of GST fear on input tax credit (ITC) on inventories truck rentals during June dropped by 7- 9% after almost 4.5% drop in May. The continuous decline in freight further dented the truck rentals by 2.5% – 3% in July,” said SP Singh of Indian foundation for Transport Research and Training. “With most tolls being done away with, the movement of trucks will be freed up. While this could reduce freight rates, it would lead to better profitability for truckers and thereby further investments into fleet replacement/addition in the long run,” said analysts at Axis Capital.