Mumbai
: The need to replace an ageing fleet and a revival in the economy may generate demand for close to half a million light-medium and heavy-duty trucks worth USD 10 billion over the next 12-18 months, say industry players.Sales of trucks in the 5-55-tonnage range have already returned to pre-Covid levels this fiscal year, they said. The market had shrunk the previous two years, hurt by an economic slowdown and then due to the impact of the pandemic. At the current rate of recovery, sales may cross half a million vehicles in the next fiscal year starting April, more than doubling the industry turnover in two years.
Sales of trucks in the segment are estimated to be 340,000 units in FY22, an over 50% expansion compared with 225,301 units last fiscal year. The growth is expected to be more than 50% in FY23 too, according to experts, as they predict opening up of the economy after Covid-related restrictions and almost all sectors returning close to normalcy driving demand for the carriage of goods.
Policies such as the scheme for scrapping old vehicles and production-linked incentives will also play a role in driving the demand for commercial vehicles, said Girish Wagh, executive director at Tata Motors. “Most lead indicators have implied promising signs of growth. Also, the current consumer sentiment index has moved in the positive direction, signifying a positive outlook in the CV sector,” he added.
The average age of India’s truck fleet is at a record high, which means the vehicles are getting older and inefficient. Close to half a million trucks are due for replacement, based on the average retention period of the first buyer.
The proportion of replacement demand was 30-35% in the past two years; this is likely to move to 50% in the coming year.
Also, the utilisation rate of trucks is moving up to 80% and profit from a vehicle after excluding interest and all expense has increased to INR 4.5 lakh despite high fuel prices (on running a minimum of INR 1,00,000 kms a year), compared with just INR 1.5 lakh a year before. With fuel prices expected to move up, there is a need for more fuel-efficient trucks with better loading capacity, which may trigger replacement demand.
Experts say, with a promising multi year up cycle on its way, the gainers will be those who have better products, savvier account management, customer sensitive culture, stronger marketing muscle and faster opportunity conversion.
“The pecking order will be decided not by the bigger over the smaller but by the faster over the slower. All things being equal consumer experience and cut through recognition of corporate brand may well be the key,” added an industry expert requesting anonymity
Industry players are upbeat also after latest data on industrial growth, GST collection and other indicators showed no major impact on economic revival from the third wave of the pandemic.
Daimler India Commercial Vehicles chief executive Satyakam Arya expects this as the start of a sustainable recovery of the CV industry, which may last the next 3-4 years. He sees India’s infrastructure push and growing ecommerce sector among factors boosting growth.
“The key initiatives suggested in the union budget encompassing logistics, electrification, capex and road infrastructure should hold considerable water in the second half of FY23,” Arya said.
He expects the medium and heavy truck market to grow 25-30% in calendar year 2022, followed by low double-digit growth in the next 2-3 years.
Vinod Agarwal, managing director of VE Commercial Vehicle, said the market was in a “sweet spot”. “It is a cyclical industry, after three years of bad period, the recovery has to happen and it has started,” he said.
The companies see diesel price hikes and headwinds from supply chain and commodity prices as risks to the recovery.
Also Read:
The Commercial Vehicle (CV) industry has been one of the bright spots in an otherwise challenging year for the auto industry. While the Auto industry de-grew by (1%), the CV industry grew by over 30% (up to Q3 FY22), though against a low base last year. Are the recent sales numbers in the commercial vehicle industry an aberration or the first step on the path of a sustainable recovery?
The country’s second-largest truck maker Ashok Leyland said there was pent-up demand for trucks in India as the average age of a truck in India today was 9.5 years, which is among the oldest ever, as fleet owners deferred purchase of new vehicles over the past couple of years, said Gopal Mahadevan, director and chief financial officer at Ashok Leyland.
