NBFC Cash Crunch Throt­tles Nov CV Sales

20% DROP also due to higher base ef­fect, higher in­ter­est and fuel costs and a change in norms that al­lows ve­hi­cles to carry more load

The Economic Times - - Companies: Pursuit Of Profit - Sharmistha.Mukher­jee @times­group.com

New Delhi: A liq­uid­ity crunch im­me­di­ately fol­low­ing the cri­sis at In­fra­struc­ture Leas­ing & Fi­nan­cial Ser­vices (IL&FS) im­pacted sales of medium and heavy com­mer­cial ve­hi­cles sharply in Novem­ber. The set­back comes on the heels of a strong last year when sales re­cov­ered strongly from the twin blows of de­mon­eti­sa­tion and GST im­ple­men­ta­tion.

Ac­cord­ing to in­dus­try es­ti­mates, sales of medium and heavy com­mer­cial ve­hi­cles dropped by more than 20% last month, the sharpest de­cline since May 2017, when vol­umes fell by 33% to16,716 units ve­hi­cles. The share prices of many com­mer­cial ve­hi­cle mak­ers are now close to their 52-week lows.

“There is a lot of con­trol over banks and mu­tual funds lend­ing to NBFCs af­ter the IL&FS cri­sis. This has re­duced loan avail­abil­ity to truck op­er­a­tors, lim­it­ing their abil­ity to pur­chase new ve­hi­cles,” said Vinod Ag­gar­wal, manag­ing di­rec­tor of VE Com­mer­cial Ve­hi­cles, a ven­ture be­tween Volvo and Eicher Mo­tors.

VE Com­mer­cial sold 3,935 units last month, which is a 7% de­cline from a year ago.

Sales at mar­ket leader Tata Mo­tors dropped 24% to 9,793 units last month, while Ashok Ley­land’s sales dipped 18% to about 8,718 units for the month.

“Novem­ber 2018 was a chal­leng- ing month for the in­dus­try due to low con­sumer sen­ti­ments as a re­sult of liq­uid­ity tight­en­ing in the mar­ket, higher in­ter­est rates and ris­ing fuel costs,” said Girish Wagh, pres­i­dent (com­mer­cial ve­hi­cle busi­ness unit) at Tata Mo­tors. Ad­di­tion­ally, a change in norms that al­lows com­mer­cial ve­hi­cles to carry more freight has af­fected sales.

“Sale of 100 trucks adds as much freight-car­ry­ing ca­pac­ity as sale of 115-120 trucks ear­lier. How­ever, the in­crease in freight de­mand is de­pen­dent on GDP growth, which has largely re­mained un­changed,” said Rajan Wad­hera, pres­i­dent (au­to­mo­tive sec­tor), Mahin­dra & Mahin­dra. “With freight-car­ry­ing ca­pac­ity in­creas­ing at a faster pace than freight de­mand, there is a down­ward pres­sure on freight rates and slow­down in truck sales.” Mahin­dra’s medium and heavy com­mer­cial ve­hi­cle sales slid 20% to 637 units in Novem­ber.

In­dus­try ex­ec­u­tives said they ex­pect de­mand to re­main weak in the near term and im­prove some­what in the last quar­ter of this fi- nan­cial year.

“We ex­pect to see a re­bound in the com­ing months as liq­uid­ity has started to ease and fuel prices have also moder­ated due to re­duc­tion in global crude prices,” said Wagh of Tata Mo­tors.

“A lot of in­vest­ments are be­ing made in in­fra­struc­ture projects, which is ex­pected to fuel de­mand for con­struc­tion trucks,” said Ag­gar­wal.

“Q4 of FY19 may wit­ness some re­vival due to the usual year-end in­crease in buy­ing and thrust on gov­ern­ment-led in­fra­struc­ture projects and other spend­ing,” con­curred Wad­hera.

Mahin­dra ex­pects de­mand to im­prove in FY20, ahead of stricter emis­sion norms that come into ef­fect in April 2020.

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