The muted growth in FY24 was mainly due to the high base of FY23, the transition to BS VI leading to higher vehicle costs and a slowdown in infrastructure projects.
10 Jul 2024 | 4895 Views | By Autocar Professional Bureau
According to CareEdge Ratings, Following muted growth in FY24, Commercial Vehicle (CV) sales volumes are expected to register a degrowth by 3-6% in FY25 due to a slowdown in demand in both the Medium and Heavy Commercial Vehicle (MHCV) and Light Commercial Vehicle (LCV) segments, as well as high inventory ...
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According to CareEdge Ratings, Following muted growth in FY24, Commercial Vehicle (CV) sales volumes are expected to register a degrowth by 3-6% in FY25 due to a slowdown in demand in both the Medium and Heavy Commercial Vehicle (MHCV) and Light Commercial Vehicle (LCV) segments, as well as high inventory levels with dealers.
The muted growth in FY24 was mainly due to the high base of FY23, the transition to BS VI leading to higher vehicle costs and a slowdown in infrastructure projects amidst elections during the latter part of the year leading to higher inventory with dealers.
As per CareEdge Ratings, demand is, however, likely to pick up some pace post-Q2FY25 with the conclusion of general elections and a likely uptick in infrastructure projects post-monsoon. Replacement demand and mandatory scrapping of older government vehicles are expected to support volumes in FY25. The CV sector is expected to exhibit recovery in H2FY25 due to anticipated GDP growth, ongoing infrastructure projects and potential interest rate cuts.
Arti Roy, Associate Director at CareEdge Ratings said, “The commercial vehicle (CV) industry is expected to experience sluggish growth, with overall sales volume likely to decline by around 3-6% in FY25. Several factors contribute to this, including general election-related disruptions, elevated vehicle costs, and high channel inventory levels. However, there is hope for improvement in the latter half of FY25 as infrastructure projects pick up pace post-monsoon and anticipated interest rate cuts provide some relief”.
Hardik Shah, Director at CareEdge Ratings said, “The Indian CV industry had witnessed its highest sales volume in FY19, and post Covid the industry was on track to surpass the same post significant improvement in sales volumes in FY22 & FY23. However, it faced a few hurdles in FY24 due to higher channel inventory, the impact of the transition to BS-VI norms, a rise in vehicle cost and high interest rates. Looking ahead, the sales volume is expected to degrow in FY25 before gathering pace in FY26”.
Slow and Steady: CV expects turnaround in H2FY25
The CV industry in India witnessed remarkable year-on-year volume growth during FY22 and FY23 of around 30.7% and 28.7% respectively. This surge was fuelled by pent-up demand as the economy recovered from the Covid-19 pandemic. MHCVs and LCVs played pivotal roles in driving overall sales volume within the commercial vehicle sector. Improved industrial and infrastructure demand drove MHCV growth while LCV was boosted by sustained growth in e-commerce.
During FY24, the CV industry faced unexpected challenges, resulting in muted volume growth of (0.7%). This was on account of a fading pent-up demand in the domestic market, sluggish overseas demand and higher vehicle costs due to the transition to BS VI emission norms. The industry had witnessed pre-buying in the March 2023 quarter ahead of the implementation of the BS-VI emission norms, which increased vehicle prices by up to five percent from April 2023, leading to lower demand in H1FY24. Further, sales in H2FY24 were partially restricted on account of a slowdown in the pace of execution of infrastructure projects due to general elections. Additionally, weak rural demand persisted as rural incomes did not keep pace with rising vehicle prices.
According to the report by CareEdge Ratings, as elections have concluded and the monsoon season subsides by September-October 2024, the second half of FY25 (H2FY25) is anticipated to show signs of recovery in the commercial vehicle (CV) industry. Expected interest rate cuts may provide relief in vehicle financing. Replacement demand and mandatory scrapping of older government vehicles are expected to support volumes in FY25. However, despite these positive expectations, the overall CV industry is likely to experience a degrowth of 3-6% in FY25.