CV segment to rev up

Written by Vrishti Beniwal | Updated: Dec 29 2007, 04:16am hrs
The New Year is likely to bring in cheer for the medium and heavy commercial vehicle (M&HCV) segment after a dismal performance so far in this financial year. Analysts expect the sector to witness a turn around in FY09. Growth is expected to come from the strong underlying demand for road freight and increased demand ahead of the nationwide adoption of Bharat Stage (BS) IIIthe new emission guidelines for auto firmsin 2010.

According to brokerage firm Emkay Shares, factors like freight generation, rates, operators profitability and the status of the pre-owned vehicle market indicate healthy state of the industry. The M&HCV goods industry will start reporting positive growth from the last quarter of FY08.

We expect the demand to gain momentum in FY09 due to low base effect and also the likely implementation of BS III norms across the nation from 2010, it says.

The commercial vehicle (CV) segment saw a meagre growth of 4% in April-November 2007, led by growth in the light commercial vehicle segment. Meanwhile, the M&HCV segment, showed a decline. Sales of goods carriers dropped 12.6% during April-September this year.

As the base got narrower, the companies will post lower decline from now on. Better growth can be expected in the coming months even for the M&HCV segment, said a Mumbai-based analyst.

The segment saw a 3.5% drop in sales from a total of 22,862 vehicles sold in November 2006 to 22,061 vehicles sold in the same month this year.

In fact, demand for domestic medium and heavy commercial vehicle goods carriers was slowing down in FY06 itself and analysts were expecting the same in FY07 also. The Supreme Court ban on overloading in November 2005 postponed the slowdown. In FY07, adjusting for the demand from overloading, the domestic segment grew by 4%. But a high base in FY07 affected volumes in the first half of FY08.