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CVs: Upturn on the horizon? - Views on News from Equitymaster
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  • Aug 27, 2001

    CVs: Upturn on the horizon?

    After a prolonged slowdown, the passenger car and two-wheeler sales have shown positive signs in recent months. However, commercial vehicle sales continue to remain depressed, albeit at a slower rate when compared with the corresponding period of the previous year.

    Commercial vehicles (CVs) sales is believed to be the pulse of the Indian auto segment. However, throughout FY01, commercial vehicle sales were in the negative territory due to a subdued demand scenario and a significant fall in agricultural production (agricultural output fell by 12 m tonnes in FY01, the highest in the last one decade). Though CV production for most of FY01 was up, barring June 2000 when production fell 5%, commercial vehicle majors could not find buyers. All the sub-segments viz. heavy, medium and light commercial sales have posted a decline in sales. However, auto companies fared well on the export front with shipment rising as high as 132% in August 2000.

    Though companies like Telco are positive about exports, recent trends suggest that we are in for a bad time on this front also. The slowdown in the world economy also seems to have affected the export demand. Exports have fallen by 26% between April-June 2001 compared to the corresponding quarter of the previous year (exports have been in the negative territory for the last five months i.e. Feb-June 2001). This could subdue sales growth even further for CV majors in FY02.

    The demand scenario is no different in the domestic market as well. In 1QFY02, commercial vehicle production and sales have fallen by 16.2% and 15.3% respectively. The continuous fall in demand seems to have forced commercial vehicle majors to cutback production (production fell in May 2001 for the first time in the last fifteen months and continued in June 2001 also).

    But there is a silver lining for the auto majors. Both the passenger cars and two-wheelers sales, in 1QFY02, have shown positive trends. Passenger car sales have gone up by 2.7% to 175,855 units in 1QFY02. Similarly, two-wheeler sales have increased by 2.3% primarily on account of new launches by almost all the two-wheeler majors.

    As far as the CV segment is concerned, the second half of the current year could see a turnaround in fortunes. As of July 2001, the progress of kharif sowing in most parts of the country was reported to be normal. Out of 35 meteorological sub-divisions, 26 divisions have received normal rainfall in the current year. This could effectively boost commercial vehicle sales towards the end of the year and bring in some breather to companies like Telco and Ashok Leyland.



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