Sucheta Dalal :Commercial Segments Revival Recovery Economic slowdown
Sucheta Dalal

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Commercial Vehicle segment recovering?  

August 29, 2009

Indian automobile industry, often described as the sunrise industry, is presently going through a rough terrain. Following the 'too harsh' fiscal years 2007-08 and 2008-09, that witnessed a significant fall in production, the commercial vehicle (CV) segment is showing some signs of revival mainly on domestic volumes.

"Market sentiments are very important for truck operators. More than the financing rates, freight rates or cost of operations, these sentiments had plunged in months of November and December last year, however those sentiments started improving from February-March," said Ravi Pisharody, president of commercial vehicles business, Tata Motors Ltd.

The domestic CV volumes has moved into a positive territory, with the decline in the domestic medium and heavy (M&H) CV segment narrowing down, from a decline of 31% in June to a decline of 8% in July and the light commercial vehicle (LCV) segment doing exceptionally well.

In July, the Tata group company, which is India's largest vehicles maker, witnessed a jump in sales to 28,408 from 22,847 units in April. Another prominent player in the CV segment, Ashok Leyland Ltd reported robust sales of 3,490 units in July compared with a 1,591 units in April. Other manufacturers like Mahindra & Mahindra Ltd and Piaggio, also reported increased sales in July.

The Indian government, on its part, had come up with a stimulus package for the automobile industry under its Jawaharlal Nehru National Urban Renewal Mission (JNNRUM) and allowed state governments to buy transport vehicles, mainly buses. Through JNNRUM, the union government will fund cities for developing urban infrastructure and services.

"The decline in the goods carrier sub-segment has narrowed down significantly mainly due to the increasing expenditure of the government towards infrastructure and the low base of the previous year. However, the LCV sub-segment did show a significant growth of 28% year-on-year in the domestic market, which can be accredited to the rise in demand for low-tonnage vehicles," said Sharekhan Ltd in a report.

The freight rates too have been improved compared to rates existing in 2008. Road freight index (RFI), tracked by Transport Corp of India Ltd in July has shown improvements in road freight rates across the country over previous months. After registering a fall of 0.4% in May and June, the RFI rose by 0.17% in July. Increased cargo movements against limited availability of trucks have pushed freight rates up, conducive for truck operators.

Religare Enterprises Ltd, in a report, said, the deliveries for buses under the JNNRUM orders coupled with overall improvement in credit environment, consumer sentiments and industrial activity would help the CV segment post better volumes in second quarter to end-September.

Lower interest rates, government stimulus packages, reduction in excise duty rates towards the early part of the year and growing presence of the players in the rural markets has been aiding the recovery in industry volumes. With the impeding drought, it would be interesting to see whether the CV segment would be able to maintain its revival or not. –Yogesh Sapkale with Sourabh Kulkarni [email protected]

-- Sucheta Dalal