MHCV sales may slip in FY17 as sluggish economy weighs

By: | Published: August 8, 2015 12:30 AM

As supply of cargo from the manufacturing and infrastructure sectors continues to remain subdued and activity in the mining sector shows...

As supply of cargo from the manufacturing and infrastructure sectors continues to remain subdued and activity in the mining sector shows no signs of a pick-up, truck fleet owners and manufacturers fear volumes for heavy and medium trucks could come under significant pressure in the next fiscal.

The medium and heavy truck (MHCV) segment showed signs of recovery in the third quarter of the last financial year as fleet owners started replacing old trucks in anticipation of increased supply of cargo. Though replacement demand pulled the MHCV segment out of the slowdown of the last two financial years, fleet owners have not increased fleet size due to poor cargo.

Areef Patel, vice-chairman, Patel Integrated Logistics, said the company did not expand its existing fleet as manufacturing has been under significant pressure and there is no clear timeline for the implementation of the GST regime. He also cited the negative impact of 2%  TDS levied by the government  as a reason. “I don’t think sales of heavy trucks are going to increase; manufacturers are pushing inventories to dealers. If the manufacturing sector grows at 2-3%, it will have an adverse impact. In the last one year, the revenues have been growing between 1% and  4% in the surface transport business as there has been pressure on the manufacturing industry,” said Patel.

Patel logistics, one of the biggest transport companies in India with 1,200–1,400 trucks, did not expand its fleet as growth has been stagnant. Tata Motors and Ashok Leyland are the two market leaders that will be adversely impacted if MHCV sales suffer due to inavailability of cargo in the long term. The MHCV segment in the April-June quarter increased 23% to 62,076 units against 50,375 units during the year-ago period.

Gr6

Tata Motors — the leading commercial vehicle manufacturer in India with a market share of 51% in the heavy truck segment — reported a positive Ebitda for the first time in five quarters in Q4FY15 at Rs 159 crore, as volumes from the segment increased significantly.

In revenue terms, MHCV sales contribute to 60% of the total revenues of Tata Motors.

Ravindra Pisharody, executive director, commercial vehicles, Tata Motors, said because of regulatory changes, there is room for replacement demand for another 6-12 months, but beyond FY16-17, the economy needs to perform. “I expect the tipper segment to come back and industrial production to go up, along with increased availability of cargo in the agriculture sector, for the MHCV segment to grow. I expect mining to start post-monsoon and that should help. We expect to go back to the 2011-12 levels by 2017-18,” added Pisharody.

Freight from the agriculture sector suffered in February-to-May due to unseasonal rainfall, which destroyed ready-to-harvest crops in western and northern India. Procurement of the wheat crop also started late, which further pulled down the rentals. “Things need to move in the right direction for the economy to improve. Return loads are still a problem and the 2% tax deducted at source is negatively impacting our cash flow”, said Vivek Arya, managing director, Rhenus Logistics.

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