It’s a long and rough road ahead for truck makers
This financial year (2020-21, or FY21) will be a complete washout for truckmakers as economic activity remains low and the balance sheet of fleet operators is feeling the squeeze, say analysts and transporters.
A grossly under-utilised capacity, coupled with issues related to financing, makes purchase of new trucks unfeasible.
The pain may linger beyond FY21 as freight generation - as and when the economy in deep freeze thaws - will happen with a lag. Therefore, buying new trucks will not be a priority for fleet operators already struggling for survival.
Vipin Sondhi, managing director (MD) and chief executive officer (CEO), Ashok Leyland, agrees, stressing on the importance of an economic support package. “These are truly unprecedented times, and there is no doubt FY21 will be challenging. It is difficult to predict when the economy will start turning around and, in turn, help the commercial vehicle sector. An economic support package is critical. This needs to be supplemented with restarting supply chains, reverse migration of migrant labour, and triggering consumer demand. Unless the ecosystem through the value chain opens, a truck cannot be produced - much less sold,” he added.
Truck sales in India have been in the slow lane since October 2018 due to a combination of factors, including new axle norms, sluggishness in the economy, and liquidity crisis triggered by Infrastructure Leasing & Financial Services.
A nationwide lockdown to contain the spread of coronavirus has further exacerbated the economic woes. Global rating agency Moody's on Friday slashed India's gross domestic product growth rate in FY21 to zero. This is lower than its earlier estimate of 2.6 per cent. It has forecast India's economic growth rate to bounce back to 6.6 per cent in 2021-22. The latest estimate is lower than Fitch's 0.8 per cent, International Monetary Fund’s 1.9 per cent, World Bank's 1.5-2.8 per cent, and Asian Development Bank’s 4 per cent.
“This entire financial year will be a washout for truck sales. Don’t be surprised if it extends to next year as well,” cautions S P Singh, senior fellow at Indian Foundation of Transport Research and Training.
Vinod Aggarwal, MD and CEO at Volvo Eicher Commercial Vehicles, remains optimistic. “Given that truck sales have been declining for a while (sales of heavy-duty trucks fell 52 per cent in 2019-20), there is pent-up demand. Transporters would be keen to replace the trucks.” But a lot depends on the confidence in the economy’s recovery and overall sentiment, he added.
Meanwhile, truck financiers fear an increase in delinquency once the three-month moratorium period offered to lenders by financial institutions ends.
“While it is early to talk about bad loans, a clearer picture will emerge after the moratorium period ends. Realistically, one expects delinquencies to go up because cashflow is under tremendous pressure,” said T T Srinivasaraghavan, MD, Sundaram Finance. While cyclicality in the commercial vehicle business is well known, except this time, coronavirus has made things worse and it will be a prolonged downturn, he added.
Ashok Leyland’s Sondhi pointed out that a strategic combination, including an accelerated execution of rural and infrastructure programmes, scrappage policy on commercial vehicles older than 15 years, reduction in goods and services tax to 18 per cent, among other factors, will help the industry get back on its feet.