Medium, Heavy CV Growth To Halve In 2016-17: India Ratings

Mumbai: Growth in the medium and heavy commercial vehicle (MHCV) segment will halve to 12-15 per cent in FY17, but the segment will succeed in driving the overall auto industry, India Ratings has said.

As the demand for high tonnage vehicles to achieve cost efficiency in operations rises, the MHCV segment’s volume growth will dip to 12-15 per cent in FY17 from an estimated 25-30 per cent it is set to achieve for FY16, it said.

The slowdown in growth of MHCV sales will be primarily due to replacement demand tapering-off, the domestic rating agency said.

In what can be indicative of depressed demand in the overall auto sector, it said the MHCV segment will drive growth for the sector.

“Auto sales in FY17 will be driven by the MHCV segment, however MHCVs’ volume growth will be slower than the growth rate of 30.2 per cent achieved between April-January of FY16 due to the tapering off of replacement demand,” it said.

There will, however, be more demand for the higher tonnage vehicles as fleet owners aim for improving their per tonne transportation cost, it said.

MHCV sales have displayed a strong and consistent growth since August 2014, after declining sharply in FY13 and FY14, where operators were delaying the replacement of their old vehicles on weak demand for freight.

Even though the demand continues to be low, the lowering of diesel prices is helping fleet owners to use additional cash flows for replacement of older vehicles, it said.

The agency said the inconsistent industrial output story as displayed in the volatility in IIP (Index of Industrial Production) makes it believe that the uptick in MHCV demand was not due to industrial demand.

Additionally, data on freight rates also suggests that the rates are low, it said.