Smoother road ahead for makers of commercial vehicles

Article from livemint.com

Although seasonality could hit truck sales marginally in November and December, the deferment of sales to the new calendar year coupled with new emission norms can give a fillip to sales in the fourth quarter of the year to March

A 52% growth rate in commercial vehicle sales during October has set the pace for a firm recovery in the sector. Although seasonality could hit truck sales marginally in November and December, the deferment of sales to the new calendar year coupled with new emission norms which come into force from 1 April 2010, can give a fillip to sales in the fourth quarter of the year to March.

That means the two leaders in the segment, Tata Motors Ltd and Ashok Leyland Ltd, which together hold nearly 88% of market share, are poised for a strong volume-led recovery in the current fiscal year.

November and December are dull months as most truck operators defer sales to the next calendar year. For example, during FY09, while sales fell sequentially from 28,019 commercial vehicles (CVs) in October to 20,637 in November and 17,906 in December, the industry registered an uptrend with 23,104 vehicles sold in January. This trend has been maintained even during years of robust growth rates, like FY08 and FY07.

One can hence expect a flat or marginal decline in sales volumes in the third quarter compared with the second quarter of FY10. However, on a year-on-year basis, volumes could be higher by around 60-70% because of a low base in the previous year. While the recovery in light commercial vehicles kicked off in July, medium and heavy duty vehicles’ volumes gained momentum with a lag since September.

Come January, there will be renewed buying interest. This time around truck owners could advance sales to January and February due to several reasons. The Euro-IV emission norms come into effect in 11 cities on 1 April 2010, while the rest of the country moves into Euro-III level. This means all fresh sales should be Euro-IV compliant. Analysts estimate that this along with the increase in input costs (mainly steel) may make a truck 7-8% more expensive. All this could lead to early buying in the fourth quarter of FY10. Any interim price increase by manufacturers or excise duty rollback (duties were cut to boost sales during recession) could dampen sales offtake in CVs.

However, both firms share an order to supply buses under the Union government’s urban renewal scheme and state transport undertakings which will shore up volumes. So far from April until October, figures from industry lobby group Society for Indian Automobile Manufacturers show a 5.2% growth in CV sales over the year-ago period. A pick-up in construction and industrial activity all point towards a better second half. Corroborating this is a report by India Foundation of Transport Research and Training, which states that rentals on major trunk routes are up 4-5% between 8 October

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