EYE ON COMMERCIAL VEHICLES

As infrastructure development projects pick up, and the logistics and e-commerce sectors grow, coupled with easing of financing options, companies are betting on a recovery

Key headwinds for the sector include elevated commodity prices and rising fuel costs, which are impacting the cash flows of truck operators

Vehicle prices have increased by over 20 per cent in the past 1518 months

CV makers believe that buses are in the best position to go electric

The next 2-3 years will be crucial for the CV segment to realise its true growth potential

vehicles, including trucks, by 20-25 per cent.)

Tata Motors’ Wagh expects a strong drive on infrastructure spending by the government to improve demand across segments in FY23. “Critical sectors including e-commerce, FMCG, FMCD (fast moving consumer durables), construction, mining, steel and cement will continue to drive demand in the M&HCV and I&LCV (intermediate and light commercial vehicles) segments. Similarly, the SCV segment is expected to grow on the back of resilient demand from the agriculture-, dairy-, and e-commerce sectors. We expect a recovery for passenger CVs from the first quarter of FY23, with the reopening of offices and schools, and increased activity in the tourism sector,” says Wagh.

Experts say that CV demand is currently supported by the gradual recovery in economic activities, thrust on infrastructure spending, favourable freight rates, stable financing environment and improved utilisation of fleet capacities. “While rural sentiments continue to be subdued, other factors like improving mining and construction activities, deferred replacement demand, lastmile transportation, e-commerce logistics, etc., are expected to support the demand. Also, with schools and colleges gradually opening, the demand for buses will also come back,” says K. Srikumar, Vice President and Co-Group Head, Corporate Ratings of ICRA.

Earlier, peak levels of bus industry was around 70,000-75,000 units whereas today, it’s a shallow 16,000 units. “We’re expecting very good recovery in the bus segment on the back of schools opening up, pent-up demand and tourism. The sector is coming back very strongly,” says Aggarwal of VECV.

When it comes to LCVs, smaller towns and cities are expected to be big growth drivers. “The pandemic has created an excellent opportunity for expansion in Tier II and Tier III cities, particularly in the LCV category, which formerly relied solely on metro cities as their big volume drivers. Also, transportation of fruit, veggies, e-commerce and other consuming sectors driven by doorstep delivery of critical commodities has fuelled the need for last-mile connectivity. With this, we expect LCV volumes to continue to rise,” says Rajat Gupta, Head of LCV at Ashok Leyland.

According to the company, the M&HCV segment is also seeing strong demand growth. “Because of the improved macroeconomic situation and demand from end-user sectors, the CV industry is currently on a recovery path. On the back of development in core sectors such as construction and mining, higher capital outlay for infrastructure projects, a favourable financing environment, and pent-up replacement demand, the M&HCV segment is likely to lead the rebound in the coming months,” says Kumar of Ashok Leyland.

He expects the company to see a significant upturn in heavy-end goods (such as construction material, machinery and vehicles). “The sentiment of the market and customers are very strong. We see a lot of demand especially in the heavy-end goods, where Ashok Leyland will see a very significant upturn. There was a large growth in the ICV (intermediate commercial vehicles) segment, within ICV in the CNG segment, which helped us capture the market back,” he says.

VECV’s Aggarwal, too, says that migration from diesel to CNG is a big business opportunity for the industry. “We’re seeing a lot of migration happening from ICE and diesel to CNG. Alternate fuels like CNG and LNG will be a big growth driver for us. Also, there’s a huge pent-up demand of replacements especially for heavy and medium duty trucks because the normal replacement cycle is five years and that hasn’t happened since the last peak,” he says. VECV is also hopeful because

“We’ve already gone through the recession cycle; now it’s time for the recovery cycle” VINOD AGGARWAL MD AND CEO, VECV

“Commodity price increases, especially steel and precious metals, have necessitated the company to pass on a part of it through an increase in prices of its products” GIRISH WAGH EXECUTIVE DIRECTOR, TATA MOTORS

of the government’s infrastructure push.

Tata Motors, too, believes that government initiatives will play an integral role in the growth of the CV sector. The scrappage policy, for example, will be critical for the entire commercial vehicle business, Wagh says. “Subsequently, the recently announced Gati Shakti project along with the government’s heightened focus on infrastructure projects, and fiscal support for capital expenditure to state governments will boost the demand for M&HCVs. The government’s performancelinked incentives (PLI) scheme is another crucial element that will prove vital for the overall CV sector and its growth prospects,” he adds. “With 27 per cent growth in volumes in FY22 over FY21, and the positive drivers, we expect the industry to continue on the growth curve.” Wagh expects the SCV&PU (small commercial vehicles and pick-ups) segments to do well on the back of strong demand from the agriculture, dairy and poultry sectors, as the sentiments continue to gradually improve.

BUSES TO LEAD TRANSITION TO ELECTRIC

The government is keen to accelerate the transition towards sustainable transportation, and CV makers believe that buses are in the best position to go electric. Electric buses are already gaining traction in public transport. “Today, more than 650 Tata Motors e-buses are running on Indian roads, which have cumulatively run more than 25 million km. We believe there is strong potential for growth,” says Wagh. CRISIL’s Sharma expects EV penetration to be led by buses (due to state transport purchases) and LCVs used in intra-city goods movement, but doesn’t expect EVs to drive overall CV growth.

In the case of last-mile distribution, too, there is an increasing demand for electric SCVs, as many e-commerce companies are aiming to shift to zero emission fleets and reduce their logistics cost. “This is another segment wherein the government is pushing for increased penetration of EVs to reduce emission levels in cities and promote ecofriendly, noise-free electric vehicles. NITI Aayog has already launched the ‘Shoonya’ campaign to accelerate adoption of EVs in the urban deliveries segment and create consumer awareness about the benefits of zeropollution delivery, and Tata Motors is actively supporting these initiatives,” Wagh says. Electrification, he adds, will provide unique growth opportunities even in commercial vehicles, as more and more segments/applications will start becoming attractive for EVs as the battery prices progressively decline over the coming years, and the supporting infrastructure keeps on improving.

According to ICRA, too, first the bus segment will be electrified followed by other segments. “Electrification would first gain traction in the bus segment, before spreading in the goods carrier segment. Within the bus segment, the traction has started with SRTUs (state road transport undertakings), which are able to take the benefit of FAME II subsidy. Multiple tenders are being floated by various state transport undertakings, and induction in certain cities has already started,” says ICRA’s Srikumar.

VECV’s Aggarwal says the next two to three years will be crucial for the CV segment to realise its true growth potential: “We’ve already gone through the recession cycle; now it’s time for the recovery cycle.”