2021 may be a bumpy ride for medium and heavy vehicles

Complete recovery for the medium and heavy commercial vehicle (MHCV) segment remains uncertain in 2021-22, despite sequential growth in demand, three industry executives told Mint.

Key parameters such as excess load-carrying capacity following the revised axle load norms, low production and fleet capacity utilization, and a surge in price because of the implementation of the Bharat Stage VI emission norms, besides increasing defaults and stressed financials of medium and small fleet operators, are going to be major challenges during the year.

Leading commercial vehicle (CV) manufacturers such as Tata Motors Ltd, Ashok Leyland Ltd, and Daimler India Commercial Vehicles Pvt. Ltd recorded year-on-year growth in MHCV wholesale volumes in December.

“While the CV manufacturers have been posting year-on-year growth in MHCV volumes, it is not a correct indicator of recovery as companies begun cutting down the production of BS IV-compliant trucks from Q2 of the last fiscal. The capacity utilization across plants remains lower than 50% even after the mild recovery seen during festive season,” said a senior executive, requesting anonymity.


Recovery in the MHCV segment must be compared with FY19, when the segment recorded its all-time high volumes, said the executive. Demand in the CV segment, also a barometer of increasing economic activity, had picked up from Q2FY20, after the lockdown was eased across the country, primarily on the back of rising consumption of essential items and production activities across key sectors including fast-moving consumer goods (FMCG), auto, steel, and cement. An improvement in construction activity also contributed to the demand for tipper trucks.

“Though fleet utilization levels have improved sequentially from the lockdown lows with improvement seen during the festive months of October and November, the freight rates continue to remain just about at the levels of FY19 as against the fuel prices, which are about 8% higher than FY19. This reiterates that fleet utilization remains lower than FY19 levels. We, therefore, believe that fleet operators’ uncertainty may continue to impact CV recovery in the medium term,” Hetal Gandhi, director, Crisil Research, said.

The financials of fleet operators are now more stressed than before, even as fleet utilization levels are at 70-80%, on a par with pre-covid levels, as cost and liabilities have gone up substantially while margins are down after businesses resumed after the lockdown, Bombay Goods Transport Association spokesperson Abhishek Gupta said.

“While we have seen fleet utilization rates grow from 20% to 70% after the lockdown, the business is still on the lower side and does not justify fleet operators investing in new, more expensive BS VI trucks. There is no clear path to revival for the fleet operators,” Gupta said.

There are an increasing number of defaults across small fleet operators with less than five trucks, as there is not enough business to pay for five-six months of EMIs, Gupta said. “We are sure this default number will drastically increase unless there is some relief that comes along (from the government),” he said.

However, a Daimler India spokesperson said: “We expect a sharp rebound from 2021, mainly driven by economic recovery. Goods and services tax collections in December being at a record high seem to clearly indicate a sharp recovery across sectors.”

Date : 05 Jan 2021

Source : https://www.livemint.com/industry/manufacturing/2021-may-be-a-bumpy-ride-for-medium-and-heavy-vehicles-11609816593512.html

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