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It is believed that the demand for commercial vehicles (CVs) is a crucial indicator of economic recovery and hence, quarterly results of India's largest CV manufacturers assume great significance not only from the company's but also the economy's point of view. Recently, Ashok Leyland posted a growth of 53.5% YoY in its turnover because of a spurt in volumes. However, is it a sign of economic revival?
A part of the rise can be attributed to the government's policy to phase out the sales of commercial vehicles compliant with BS III emission norms from the beginning of April 2017. Upgrading the BS norms leads to lower pollution. Automobile companies are directed to shift to BS IV norms from the above mentioned date. Reportedly, prices of commercial vehicles will shoot up by atleast Rs 1 lakh once the BS IV norms are applicable. To counter this price increase, transporters are stocking up inventories at reduced prices.
Further, increase in sales can also be attributed to the rising public expenditure in the infrastructure sector. Mr Gadkari, Minister for Road Transport and Highways, stated that the quantum of stranded projects in the road sector have reduced from Rs 3,800 billion to Rs 150 billion. Further, the pace of building highways has gone up from 2km a day to 18km a day. Additionally, road ministry has approved the construction and widening of 1.52 lakh km of roads. What will all this lead to? The spurt in road construction leads to increased requirement of raw materials such as cement, which in-turn pushes up the quantum of fleet required to transport the raw materials to the construction site.
Reportedly, the transporters have also flush with more money on account of savings from lower diesel prices. This money is also being utilized to buy new fleets.
However, sustained growth in commercial vehicles will be witnessed once the factory output increases. The more the flow of goods in the market, more will be the requirement for commercial vehicles to transport the same. Hence, growth in the IIP numbers will be the key thing to watch out for going forward to track a sustainable uptrend in commercial vehicles.
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