Source: Report on “India LCV market sees green shoots of recovery after two-year decline” by Autocar Professional, April 2016
The LCV passenger carrier segment has registered 9.2% growth YoY with sale of 48,960 units (FY15: 44,816 units). The LCV goods carrier segment, which is large in volume and has been facing difficulties on multiple fronts, is up marginally by 0.89%, on sales of 334,371 units (FY15: 337,377 units).
The recovery of LCV segment is likely to happen due to increased infrastructure spend by the government, faster movement of goods across the country by e-retailers and the potential of a regular monsoon season. The industry body says that following a normal monsoon, there should be strong agricultural freight demand during the kharif harvest season. Sales will also pick up at the fag end of the fiscal due to buyers advancing sales in Q4 FY17 due to the all-India BS IV implementation from April 1, 2017. With consumption expenditure picking up and availability of redistribution freight improving, NPAs would decline and the financing scenario may gradually ease by the first half of FY17. Monthly collection ratios of CV loans have also started showing signs of improvement, and this is expected to provide a boost to CV sales.
Problems faced by the LCV manufacturers
Two years of negative growth, the sector experiencing multiple headwinds like poor monsoon, unavailability of finance, overcapacity and also lower demand are the major problems. In fact, the cyclist nature of the domestic CV industry sees a decline after every 2- 3 years of growth.
Commercial vehicles business is characterized by strong entry barriers of high initial cost, requirement of strong distribution/ after sales service network, vendor/ ancillary network, long gestation period and technological adaptations to peculiar Indian conditions etc. Due to these barriers, commercial vehicle sector, unlike passenger cars, does not face any significant immediate threat from new MNC ventures.
Product life-cycle for CV has become shorter as players have accelerated new product launches to retain market shares. New products that cater to niche consumer segments have also increased the market segmentation.
Suppliers: The two key raw-materials for the industry are steel and auto-components. The auto-component sector has a number of small suppliers dependent on a few big auto manufacturers thus their bargaining power is low due to low switching costs of CV manufacturers.
On the face of balance sheet, material cost accounts for about 70-75% of total cost for CVs. This however should be interpreted keeping in mind that typically, about 60-70% of components are sourced from outside. These components, treated as material cost have in-built overheads (which are fixed cost) of the vendors.
High ancillarisation is an integral feature of the industry. Typically 60-70% of the components are sourced from third party vendors. Development and upkeep of an ancillary network is one of the most crucial tasks.
Substitutes: Railway network, metro-rail network, three wheelers are a substitute for M&HCV and L&ICV vehicles.
External Environment Scanning
The industry has benefitted from the implementation of BS IV emission norms, which became mandatory across North India and some of nearby regions from October 2015
The Supreme Court’s ban on overloading has also been very positive for the LCV industry as more passengers vehicles will be required for transportation
Large number of government policies supporting the growth of infrastructure in the country combined with laws to scrap HCV older than 15 years and reduction in the life cycle of HCV is one of the man factors for growth of the LCV market.
Government policies for the growth and development of semi-urban and rural India is contributing to the growth of LCV as these are proving to be the easiest and cheapest modes of transportation in the regions mentioned above with 2,36,000 villages and several cities with area under 100 km square
Aggregators like Ola-Uber are capturing the public transport market in Tier-I cities but Tier-II and Tier-III cities are still open market for LCV.
Finance minister Arun Jaitley on Monday in his budget speech announced the reduction of the weighted deduction from 200% to 150% from the financial year 2017-18 to financial year 2019-20 and from the financial year 2020-21 onwards the deduction will be restricted to 100%. This will encourage technological growth and development of high-efficiency low fuel consuming vehicles. This will also help the industry to be cost efficient.
Availability of terminal life policies on LCVs and replacement incentives provided by the government
Availability and concessions on interest rates for export financing
Ease of credit purchase of the LCVs and availability of financial support for the LCV buyers
Urbanization policies and LCVs are becoming a source of self-employment in the developing regions
Growth of infrastructure such as roads and bridges is making it convenient to use LCVs for small businesses
Logistical needs in India are on the rise. The proliferation of e-commerce is one of the many reasons that is providing the thrust to LCV.
Automobile Sales-an overview
The sales of Passenger Vehicles grew by 7.24 percent in April-March 2016 over the same period last year. Within the Passenger Vehicles, Passenger Cars, Utility Vehicles and Vans grew by 7.87 percent, 6.25 percent and 3.58 percent respectively during April-March 2016 over the same period last year.
The overall Commercial Vehicles segment registered a growth of 11.51 percent in April-March 2016 as compared to the same period last year. Medium & Heavy Commercial Vehicles (M&HCVs) registered a growth at 29.91 percent and Light Commercial Vehicles grew marginally by 0.30 percent during April-March 2016 over the same period last year.
Three Wheelers sales grew by 1.03 percent in April-March 2016 over the same period last year. Passenger Carrier sales grew by 2.11 per cent & Goods Carrier sales declined by (-) 3.62 percent respectively in April-March 2016 over April-March 2015.
In April-March 2016, overall automobile exports grew by 1.91 percent. Passenger Vehicles, Commercial Vehicles, Three Wheelers and Two Wheelers registered a growth of 5.24 percent, 16.97 percent (-) 0.78 percent and 0.97 percent respectively in April-March 2016 over April-March 2015.
As per fiscal year 2016, in India, Tata Motors leads sales of mini trucks at 70% followed by Ashok Leyland, while Mahindra leads sales of pickup trucks.
Source: Report on “Indian Commercial Vehicle Strategy Analysis FY 2016” by Autobei Consulting Group, April 2016
The following table sets forth the Company's commercial vehicle sales, industry sales and relative market share in commercial vehicle sales in India.
Industry sales of commercial vehicles has seen an increase by 9.6% to 704,440 units in Fiscal 2016 - 642,641 units in comparison to Fiscal 2015.The sales of Industry sales in the medium and heavy commercial vehicle segment has seen an increase by 30.3% to 302,532 units in Fiscal 2016, as compared to sales of 232,113 units in Fiscal 2015 the reason basically being increase in replacement due to the new Bharat stage emission standards, also the replacements of fleet vehicles, which was affected by the constant freight rates across main routes, decrease in the prices of diesel, the increase in the quantities of cargo being transported in a month, a new shift towards renewal of earlier of activities like mining in the states of Karnataka and Goa, also a revitalisation of construction activities, including a positive expectation towards expectations of increased investments in sectors as manufacturing and infrastructure. Industry sales of light commercial vehicles has seen a decline of 2.1% to 401,908 units in Fiscal 2016, from 410,528 units in Fiscal 2015, primarily due to lower freight transportation needs and a demand for high-capacity additions to transportation fleets over recent years, financing defaults and tightened financing norms, all of which continues to hamper the recovery in sales of light commercial vehicles, particularly small commercial vehicles sales, which are heavily dependent on funding availability.
The demand for LCV demand is supposed to increase in Fiscal year 17 with the increase in improving lifestyle, purchasing parity and better consumption demand and hopeful ease of financing. The industry body says that following a normal monsoon, there should be strong agricultural freight demand during the kharif harvest season. Sales will also pick up at the fag end of the fiscal due to buyers advancing sales in Q4 FY17 due to the all-India BS IV implementation from April 1, 2017. With consumption expenditure picking up and availability of redistribution freight improving, NPAs would decline and the financing scenario may gradually ease by the first half of FY17.
Ernst & Young in one of their studies concluded that competition among commercial vehicle manufacturers in India is going to face intense competition as international OEMs raised the bar of technology, quality, durability and reliability; moreover domestic OEMs are investing on the same line. So, companies are reinforcing distribution networks to build new competencies. References