Signs of growth: LCVs on road to recovery

With sales picking up in the medium and heavy vehicles segment, it’s now the turn of LCVs.

By: | Updated: March 21, 2016 12:46 PM

The market for light commercial vehicles (LCV) in India, which has seen declining sales over the last seven months, may stage a turnaround with sales picking up in the second half of fiscal 2016, as a result of the upswing in sales of medium and heavy commercial vehicles seen over the last three months, and which is likely to continue in light of the thrust on manufacturing and infrastructure in the recent Budget.

The transportation of goods across the country follows a hub and spoke model wherein goods arrive at certain key hubs through trucks, and are transported to surrounding areas in LCVs.

Increased manufacturing and infrastructure-building activity over the last few months have spurred the sales of medium and heavy commercial vehicles (M&HCV) such as trucks, dumpers and buses. This is expected to lead to higher demand for LCVs, albeit with a lag effect.


Analysts expect LCV sales to grow 10-15% in the next fiscal, when the current growth in M&HCV sales trickles down to that segment. Signs of a recovery in this segment are already visible as LCV sales in February declined at a lower clip than they did in the preceding months.

Tata Motors recorded a 4% year-on-year decline in LCV sales in February to 14,347 units. Ashok Leyland's LCV sales declined 8% in the same period. In January, Tata Motors, which is the largest LCV-maker in India with an over 50% market share, saw sales decline 18% year-on-year in January, and 26% in December.

Ravindra Pisharody, executive director, commercial vehicles at Tata Motors told FE that the lack of financing options for prospective LCV buyers was the major reason for decrease in sales over the last few months. “All the big fleet operators get loans from big finance companies unlike the prospective owners of light commercial vehicles (who are mostly first-time buyers operating small businesses," he said. "These people do not have much collateral and property. So, they need 90% funding.”

“There is usually a six month-lag between (sales trend) the M&HCV market and the LCV segment. Contraction in demand is impacting the LCV business, but we expect this to be reversed in the next fiscal, as repossessed vehicles are absorbed by the market and fresh demand comes in,” an Ashok Leyland spokesperson said in response to an email. The Chennai-based company is expected to invest in new variants of LCVs to meet specific market requirements over the next few years.

According to analysts, Tata Motors will be the biggest beneficiary once demand in the LCV segment recovers. In anticipation of the upswing in LCV sales, the carmaker is gearing up with new LCV. It launched a new variant of its 'Ace' range of LCVs on March 2.

“From three-wheeled goods carriers, the demand is gradually moving towards LCVs and as a result of overall improvement in the economy financial institutions have started lending to prospective buyers of LCVs”, says Ashwin Patil, auto sector analyst at LKP research.

An auto analyst with a Hong Kong-based research firm said LCV sales would pick up in either the June or September quarter in 2015-16. On the other hand, M&HCV sales are expected to recover further in FY16, with India's southern states leading the way. A Mumbai-based auto analyst who did not want to be named said that South India has been performing better than the rest of the country and the increase in Ashok Leyland’s commercial vehicles sales is indicative of that.“For the next couple of years the combined CV vehicle segment is expected to grow 14-15%. Pick up in investment cycle and industrial growth will help turn around the M&HCV business,” explained the analyst.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.