The medium and heavy commercial vehicle units (M&HCV), in particular, have already seen visible green shoots as sales have been growing in the past 5-6 months. Pick-up in economic growth, improved replacement demand from large fleet operators and reasonable absorption of excess capacity in the market have helped revival in demand for trucks. M&HCV industry is expected to end the fiscal 2014-15 with a decent double-digit growth.
Decent Double digit growth
During February this year, both goods and passenger segments of M&HCV category have reported strong double-digit growth. Goods segment grew by 38 per cent at 18,767 units, while passenger segment saw a rise of 34 per cent at 3766 units.
For the 11-month period of 2014-15, M&HCV goods segment reported a growth of 21 per cent at 172,473 units compared with 142,823 units in the same period a year ago. Growth has been robust especially in the heavy trucks. This upswing was also due to the low base of 2012-13 and 2013-14, when sales fell steeply, by about 25 per cent each year.
There are also indications that freight availability for trucking industry will improve. A gradual revival in fundamental parameters such as industrial production, construction and mining activities will help.
However, passenger segment reported a decline of eight per cent at 31,453 units during April 2014-February 2015 period on the back of poor sales in the STU (State Transport Undertakings) segment. In the past few months, there have been improvements in supplies to STUs.
LCV slowdown will end
Meanwhile, LCV is still in negative growth curve. But, the rate of decline has come down and this segment is also expected to enter positive growth during second half of 2015-16. The passenger segment of LCV has already started reporting positive growth, aided by new launches.
Normally, heavy segment will see the recovery first and followed by LCV when a down cycle ends in commercial vehicle segment.
“The improvement in operating environment for fleet operators, expectations of pick-up in investments in infrastructure as well as manufacturing space along with renewal of mining activities in some parts of the country suggest that the down cycle in M&HCVs has bottomed out. Likewise, the slowdown in the LCV segment also appears to be losing steam with the segment reporting lower decline in unit sales over the past couple of months,” pointed out rating agency ICRA.
Even as the recovery is at least two quarters away for the LCVs, the segment is expected to see increased competition in the coming years. While existing players like Tata and Mahindra are revamping their portfolio, new players like Isuzu, Maruti and VECV are expected to trigger more competition.
Over the long term, pick-ups (2.0- 3.5 tonne gross vehicle weight) are likely to grow at a faster pace than the overall CV market and lead the pack in terms of sales. In terms of market share, Tata Motors continues to be the leader in the M&HCV (Goods) segment, while Ashok Leyland has gained market share on back of recovery in the Southern market.
In the LCVs (Goods) segment, Tata Motors’ market share has declined since FY2014 due to slow down in the sub 2-tonne category where it commands a strong market share. In the bus segment, new orders have resulted in improvement in market share of Tata Motors and Ashok Leyland from Q2 FY 2015 onwards.
Demand for busses ...
“From 2007 to 2010, the market in India for medium and heavy trucks increased by more than 15 per cent, with light commercial vehicles up 57 per cent. Bus demand has also soared as the most popular means of transportation in large cities,” R Ramakrishnan, Senior VP, Commercial Vehicles, Tata Motors said recently.
“Two factors assure rising demand for commercial vehicles and, in particular, for heavy trucks in India. The construction sector will continue to experience dynamic growth, and the road network will be substantially improved. Already, the Indian government has introduced a state programme for upgrading and building roads and strengthening harbour connections. National highways, which comprise only about 2 per cent of the road network but carry 40 per cent of the traffic, will be particularly important. By connecting more rural areas to the road network, the need for commercial vehicles outside large metropolitan areas will also rise,” he added.
New brands to challenge the incumbents
Meanwhile, the commercial vehicle industry, particularly the medium and heavy segment, will also see huge competition in view of aggressive plans by Daimler and VECV, a 50:50 joint venture between Volvo and Eicher Motors. These two new players are expected to challenge domestic players with their Bharat Benz and Pro Series modern truck offerings respectively.
Daimler India Commercial Vehicles (DICV), a wholly-owned subsidiary of Daimler AG has recently announced that sales of its Bharat Benz trucks surpassed 20,000 units in India since its market launch in September 2012.
“This sales milestone of 20,000 trucks shows that even under difficult market conditions of the Indian truck industry, we are fully on track. Our trucks are well perceived by the Indian customers and subsequent orders are evidence of the confidence of our customers,” Erich Nesselhauf, Managing Director and CEO, DICV, said.
DICV claims number three position in the heavy-duty segment. It has been significantly increasing its dealer network across the country. It has over 80 dealerships that cover 85 per cent of the Indian market.
VECV is another serious player in the CV market. In 2008, the Volvo Group and Eicher Motors came together with a vision to offer modern trucks in the Indian CV industry. This association has culminated in development of a complete new product range called ProSeries, which will sell trucks in 5 to 49 tonne gross vehicle weight (GVW) range with a promise of 5-10 per cent higher fuel-efficiency than competition.
Local and international players spur growth...
Thus, the past few years saw both the domestic and international OEMs focus on developing or upgrading their product portfolio. Indian companies like Tata Motors and Ashok Leyland have also strengthened the product portfolio incorporating international quality and standards to match foreign players’.
With the entry of foreign players, marketing strategies have also seen a radical shift. There has been strong emphasis on total cost of ownership (TCO) rather than initial price in the truck segment. This means trucks are marketed based on the promise of better fuel efficiency, reliability, driver comfort safety and resale value. Though heavy discounts are still being offered for new truck purchases, TCO seems to be emerging as a key purchase influencer.
The domestic demand for commercial vehicles is expected to touch the 10-lakh units mark by 2017 (5.49 lakh units during 11MFY2014-15). Medium and heavy commercial vehicles are expected to grow at 20 per cent in short to medium term. While lower diesel price is helping to improve the profitability of transporters, the proposed implementation of Goods and Service Tax (GST) is expected to provide a long-term boost to the CV industry.