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
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.