ICRA-Domestic CV industry grows by 20%, HCV grows fastest at 28% driven by healthy demand from end-users
· Capacity addition in tonnage terms outpaced industry volume growth and grew by 30% in FY 2018
· Average tonnage of trucks has increased to 20T from 15T a decade back
With a volume growth of 20% in FY2018 as compared to FY2017, the Indian Commercial Vehicle (CV) sector has ended the year on a strong note. Within the CV industry, says an ICRA research note, HCV (Trucks) segment outperformed the industry and witnessed a growth of 28% to 2.12 lakh units in FY2018 driven by healthy demand from end-user industries, particularly automobiles, container traffic and bulk materials.
Commenting on the broad factors behind the industry’s good show, Subrata Ray, Sr. Group Vice President, Corporate Sector ratings, ICRA, says, “While on-going economic recovery supported higher demand for CVs, a factor that also played an important role was stricter implementation of overloading norms over the past 12-18 months across many of the North Indian states including Uttar Pradesh, Rajasthan, Punjab and parts of the Madhya Pradesh.”
The industry has been gradually witnessing a greater preference for higher tonnage trucks over the past decade; the demand has gradually shifted from 16T to 25T and is further shifting in favour of 31T and 37T trucks.
In particular, sales of 37T segment has witnessed sharp jump in sales, due to increasing preference for higher tonnage trucks. Capacity addition (in tonnage terms) in the system outpaced volume growth and grew by 30% compared to 19% increase in M&HCV (Truck) sales in FY2018. The share of 35T & above segment has increased to 63% in FY2018 from 19% (FY2013) and the average tonnage of trucks in India has improved considerably from 15T in FY2009 to 20T during FY2018.
This trend has been supported primarily by superior economics of higher tonnage models, improving road infrastructure, dearth of experienced drivers and stricter implementation of overloading norms. As vehicle's tonnage increases, the trucks’ economics also improves, especially over longer distances as cost of operations is not directly proportional to vehicle's payload or revenue generation. For instance, ICRA says the cost of operating a 35T is approximately 35% lower vis-a-vis a 16T truck when compared on cost/per ton/per km basis.
Post GST, the trend towards consolidation has already begun across most of the consumer-oriented sectors like FMCG, consumer durables, pharmaceuticals, building materials and other allied sectors. This trend is likely to drive greater use of heavy duty trucks. The consolidation of warehouses would also provide a further fillip to HCV sales as it is expected to lead to higher amounts of goods to be moved between manufacturing location and warehouse, which will lead to increased demand for higher tonnage vehicles.
“Going forward, these factors will continue to drive demand for heavy duty trucks and mirror market structure of more mature markets like U.S. and Europe. Product development initiatives by OEMs, coupled with improving road infrastructure have also made these changes viable,” concludes Ray.