ICRA Research expects the Indian commercial vehicle (CV) industry to witness a robust volume growth of 12-15% in FY23. This is borne by the fact that the industry has registered a healthy growth of 112% YoY in wholesale dispatches in Q1FY23 (albeit on a low base) and is expected to continue its growth trajectory, given the improvement in the macroeconomic environment, replacement cycle and healthy demand from the end-user industries.
On the flip side, though headwinds such as hardening of interest rates, elevated fuel prices, increasing vehicle prices to pass on the increase in commodity prices, and geo-political issues may constrain the pace of recovery, the same is not expected to significantly slow down the momentum witnessed over the past couple of quarters.
Kinjal Shah, Vice President & Co-Group Head, ICRA Ratings, noted, 'The growth trends in the CV industry have been largely secular in nature, but more pronounced in the goods carrier sub-segment. Within goods carriers, growth in the medium and heavy commercial vehicles (M&HCV) sub-segment has been spurred by demand from the steel, cement, and mining industries and a pick-up in economic activity, as the challenges related to the pandemic, abated. This is expected to continue over the medium term, and ICRA expects volume growth of 15-20% for M&HCV (trucks) in FY23.'
The light commercial vehicles (LCV) segment started recovering earlier than the M&HCV segment, supported by healthy demand from e-commerce as well as from agricultural and allied sectors. However, the segment witnessed an 8% sequential dip in volumes in Q1FY23 as the pent-up demand tapered off and the base effect caught up.
Shah added, 'Within M&HCV (trucks), demand for tippers would continue to be supported by the pick-up in construction activity, while that for haulage trucks would be dependent on the general macroeconomic activity.'
Recovery in the bus segment, which had remained elusive with the prolonged pandemic, set in finally from Q4FY22 onwards. In Q1FY23, the segment reported healthy volume growth of 258% YoY to 19,297 units, supported by the re-opening of schools and offices and the gradual return to normalcy after the pandemic.
ICRA expects the CV book of financiers to grow by 7-9% in FY23. The overall financing environment would remain a key monitorable element going forward, especially the trends in the asset quality of CV financiers, which would remain dependent on the ability of the borrowers to pass through the fuel cost and interest cost escalations adequately in the near term.