An aberration or the first step to sustainable recovery?, Auto News, ET Auto

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By Kaushik Narayan

The CV industry has garnered plenty of consideration recently. The trade has carried out nicely prior to now few months. We analyse the efficiency of the trade intimately to know whether or not this can be a short-term aberration or the trail to a long-term sustainable progress. We overview the CV trade efficiency and likewise look into the efficiency of truck operators this yr. We may even spotlight the foremost traits noticed this yr and at last summarise what could be anticipated from the trade within the coming yr.1. CV trade efficiency this yr

Constant progress month on month and a resilient efficiency regardless of the challenges thrown up by Omicron have helped the CV trade stage a comeback. The next is an in depth evaluation of the efficiency of the trade this yr.a) The second-best performer: The CV trade was the second-best solely to passenger vehicles rising at 30% in FY21 whereas, it fell barely shy of the volumes in FY20, down 18%. The three-wheeler trade continues to be essentially the most affected section throughout the pandemic adopted by the 2-wheeler trade which continues to grapple with low rural demand (together with demand for entry degree autos).

b) Development in all truck segments: The expansion within the CV trade was nicely distributed throughout Small Industrial Automobiles (SCVs), the Intermediate & Gentle Industrial Automobiles (I&LCV) and the Medium & Heavy Industrial Automobiles (M&HCV). I&LCV volumes have nearly rebounded to the pre-Covid ranges and they’re intently adopted by the M&HCV section. The SCV section was impacted for a number of months earlier within the yr resulting from semi-conductor quick provides and is predicted to rebound within the final 2 months of the yr. Whereas the passenger section posted a progress in opposition to final yr, it continued to lag considerably behind volumes within the pre-Covid interval. c. The highest 5 producers carry out nicely: All main producers have seen progress in opposition to final yr. The market leaders Tata Motors, Ashok Leyland and VECV have all seen sturdy progress in volumes in opposition to final yr. Maruti additionally continued to impress, rising its volumes over the previous 2 years regardless of the pandemic. Nevertheless, Mahindra’s volumes had been impacted by a scarcity in provide of semiconductors that had been sorely wanted for its SCV vary of autos. This impacted its provide between August and December. We count on Mahindra volumes to develop considerably within the final 2 months of the yr since shortages have now been addressed.2. Truck Operator profitability

The gross sales of CVs are depending on the profitability of truck operators and the utilisation of the prevailing vehicles available in the market. Operator profitability in flip will depend on the prevailing freight charges and diesel costs (since diesel nonetheless accounts for over 40%-60% of working bills).To be able to higher perceive the market demand, we’ve got used a few main indicators, Fastag Assortment and E-way payments. They provide a robust perception into the general utilisation of vehicles available in the market. These indicators at the side of freight charges and diesel costs give a greater understanding concerning the viability of the operators.

a. Fastag assortment grows by 82% YOY: Industrial Automobiles contribute to a overwhelming majority of toll collected at toll cubicles throughout India (A random examine throughout toll cubicles indicated that they account for practically 70% to 90% of assortment). Assortment has grown by 82% and we’ve got additionally seen constant progress month on month till December this yr. Additionally it is clearly seen that the affect of Wave 2 of the pandemic was a lot lower than that of Wave 1. This clearly signifies that there was a robust upswing in freight motion this yr.

b. 31% extra E-way payments issued this yr: E-way payments have grown by 31% to INR 63 crores from 48 crores final yr. Freight volumes have additionally been extra constant this yr. A quick take a look at E-way payments issued within the July to December interval signifies they crossed 6 crore payments each month in that interval this yr vs. solely in 2 months in the identical interval final yr. This clearly signifies that freight motion seems to have stabilised this yr.

c. Persistently excessive truck utilisation ranges: Truck utilisation has stayed sturdy and has remained constant month after month this yr. Truck operators benefited from the expansion within the economic system and the restoration of products motion publish Wave 2 of the pandemic. Since July, utilisation ranges have remained persistently over 74%, barring November, the place it dropped to 70% publish the vacation season. Utilisation ranges have continued to stay higher than final yr, together with the height months of December and January this yr.

d. Rising freight charges vs. flat diesel costs: Till wave 2 of the pandemic, diesel value hikes had persistently outgrown freight price will increase which had lagged behind. Nevertheless, since Could, freight price progress has outpaced Diesel costs. This has been a significant aid for truck operators bringing in some much-needed aid publish 2 waves of the pandemic. Nevertheless, we additionally anticipate that when diesel costs rise once more publish the elections, freight charges will as soon as once more lag behind diesel value hikes.

e. The worthwhile operator: Because the economic system continues to go from strength-to-strength publish pandemic, the monetary well being of the operators is bettering. Extra items motion has led to larger utilisation of vehicles, which in flip has helped enhance freight charges. This has led to higher revenue for operators this yr.Operators have additionally obtained short-term aid from flat diesel costs because of authorities coverage throughout the elections. Nevertheless, different bills proceed to rise. The price of BS6 vehicles have elevated by over 25% to 40% over related BS4 vehicles, resulting in larger EMIs. Driver shortages have led to elevated driver salaries. Tyre and Lubricant prices have additionally elevated considerably over the previous few months with rising gasoline costs. This has led to a major enhance within the total value of operations for Operators.Regardless of these challenges, the general monetary well being of the operators has improved considerably. Financiers that we’ve got just lately talked to have indicated that repossession of vehicles is now again to pre-pandemic ranges. All this bodes nicely for more healthy fundamentals which is sweet for a brighter future for the CV trade.

3. Highlights of the yr 2021-22

a. A narrative of three quarters: CV sales damaged by quarter is revealing. Wave 2 of the pandemic had a major affect on Q1 gross sales (despite the fact that they had been considerably higher than the yr earlier than). Nevertheless, gross sales in each Q2 and Q3 matched the pre-pandemic gross sales. This means that the trade is nicely on its method to reaching pre-pandemic gross sales in a constant method.

b. Selective sectoral progress: A number of main sectors inside the CV trade have seen disproportionate progress this yr. E-commerce has made vital inroads throughout the pandemic and this has benefited operators specialising in E-commerce and people within the parcel / courier section. Equally, operators in FMCG, CNG cascade transportation and Infrastructure contractors have additionally seen sturdy progress. Whereas most different segments have seen improved utilisation this yr vs. final, they’re but to see pre-pandemic utilisation. Development has additionally accelerated in city India whereas rural India continues to lag barely behind. Geographically, the expansion has been led by the states within the North and West adopted by the South and Central states. On the similar time, the East continues to lag behind.

c. Lacking the bus: Passenger bus transportation continues to be the worst hit within the industrial automobile section. All sub-segments together with College, Employees, Vacationer, Night time Service and Route allow operations continued to stay idle for a lot of the yr. The one brilliant spot was Employees transportation for Manufacturing items which has come again strongly with the ‘Atmanirbhar Bharath’ initiative.d. CNG variants flexing their muscle: CNG is slowly transitioning to change into a variant of selection in industrial autos. Amongst its many benefits, two stand out. It’s cheaper than diesel (partly resulting from subsidies). And it’s a inexperienced gasoline (with decrease CO2 emissions). On the similar time, the Authorities’s push to extend the variety of CNG meting out stations has made this transition fast and environment friendly. In Q2 and Q3, CNG was the popular variant throughout the SCV & I LCV vary of vehicles. Market chief Tata Motors just lately shared that 44% of its gross sales in I&LCV and 33% in SCV got here from CNG till January 2022. Different producers indicated related numbers. Whereas Ashok Leyland missed out on this chance final yr, it has just lately showcased a variety of vehicles that at the moment are CNG able to reap the benefits of progress alternatives within the coming yr.

e. Used truck costs break new floor: Costs of fast-moving fashions of used vehicles have risen between 15% and 30% over the previous few months. A mixture of excessive costs for brand spanking new BS6 vehicles, excessive truck utilisation and rising demand for used vehicles have helped enhance their resale worth.4. What to anticipate subsequent yr?

a. Geopolitical state of affairs: The continued battle between Russia and Ukraine will have an effect on the worldwide economic system. An extended-drawn battle additionally creates excessive ranges of uncertainty globally. Russia can also be a significant producer of crude which can in flip affect diesel costs considerably. Whereas the affect on the Indian economic system could also be small, it could pose a problem to our anticipated price of progress, which can affect the gross sales of CVs.

b. Sustained progress momentum: The basics level to the beginnings of a robust restoration within the CV trade. Demand for shifting items is holding utilisation of vehicles excessive and freight charges secure. Operators are presently worthwhile and the demand for brand spanking new vehicles is rising. Because the economic system grows at pre-Covid ranges beginning subsequent yr, the CV trade ought to see sustained progress. CRISIL has just lately shared that they count on the CV trade to develop between 18% and 23% within the coming yr.

c. Low affect disruptions: All industries have been affected by disruptions, some greater than others. The CV trade will count on low ranges of disruptions to operations within the coming yr resulting from Covid. Constant insurance policies for containment each on the central degree and on the state degree will restrict disruptions available in the market and provides trade the leeway for continued progress.d. Rising diesel costs: The continued battle between Russia and Ukraine has added to the pressure of already excessive crude oil costs. Even previous to the battle, Goldman Sachs had anticipated crude costs to remain elevated this yr and subsequent with oil breaching the USD100/barrel mark by Q2 2022. The battle has already elevated costs past USD100 nicely prematurely of Goldman’s predictions. Elevated costs will in flip translate to larger freight charges. Whereas these can be handed on to finish customers, as the price of items rise, volumes can be underneath stress as soon as once more inflicting challenges in utilisation. Since diesel costs are presently subsidised for the continued Meeting elections, we anticipate a major double digit value enhance in diesel costs very quickly.

e. Extra sectors becoming a member of the celebration: Because the economic system continues to develop, extra segments will see improved prospects for progress. Tippers, transit mixers, cement and metal transportation will all profit from the Authorities’s infrastructure push. Rural India may even profit from schemes introduced within the price range and a robust monsoon. All these elements level to a extra broad-based restoration throughout a number of sectors within the subsequent yr.f. Time to exchange older vehicles: Most operators have restricted the acquisition of vehicles for brand spanking new contracts with just a few changing their older fleet. Substitute has taken a again seat resulting from worries round disruption because of the pandemic. Within the coming yr, we anticipate that extra operators will go in for substitute and modernisation of their present fleet.g. Getting again on the bus: As we study to reside with the pandemic, we anticipate that youngsters can be allowed to go to highschool frequently subsequent yr. This can be a set off for all places of work to be re-opened in a hybrid or full-time format together with IT & ITES which can deliver the prevailing fleet of buses again in service. This may even be a set off level for substitute of outdated buses and for addition of recent buses to the prevailing fleet.h. CNG as a variant of selection: Till Q2 2022, CNG autos had been primarily offered within the NCR area. Nevertheless, with the rising Diesel costs and a rising community of filling stations, CNG turned a preferred choice amongst CV consumers. We anticipate this development to proceed and if diesel costs keep excessive, CNG variants will quickly overtake diesel variants in gross sales.i. Progressive new merchandise: All OEMs are presently engaged on a portfolio of recent merchandise. Minister for MoRTH, Nitin Gadkari has tasked OEMs with growing flex gasoline engines which might run on petrol, ethanol or their blends. OEMs are additionally within the technique of growing CNG engines that may work with M&HCV vehicles. We additionally anticipate the introduction of EVs within the SCV section within the close to future. All main CV producers have made a few of the largest commitments to funding within the just lately concluded Automotive PLI floated by the Indian Authorities.j. Threat of not charting India’s gasoline pathway: It will be important for the Union Authorities to chart out a gasoline pathway to the longer term. That is important for OEMs to know the place to speculate their R&D to maximise their returns for the longer term. Whereas an excellent portion of CNG is extracted domestically, India continues to import a big portion of its necessities and international costs for a similar have been rising. On the similar time, the federal government can also be encouraging OEMs to deal with flex gasoline engines, EVs and LNG. If the Authorities delays charting out a transparent pathway, this may give rise to giant dangers in deploying capital which can result in OEMs shedding their edge to startups that make investments capital in area of interest know-how.okay. Anticipating the following provide chain disruption: OEMs need to take care of the rising volumes, altering coverage and rising diesel costs and enter prices. The worldwide semiconductor disaster impacted the provision of Mahindra SCVs this yr. Equally, the trade additionally confronted a scarcity within the provide of elements used for CNG autos because of the sudden enhance in demand. As CVs change into extra subtle and the variety of part suppliers continues to shrink, the following scarcity could not come from semiconductors or CNG elements however elsewhere. The OEMs greatest ready to plan for the following provide chain disruption could have an edge in gross sales.In abstract, we consider that the CV trade is on the verge of a breakout yr of sustainable restoration subsequent yr. The basics stay sturdy and the operators, OEMs and financiers stand by trying ahead to benefiting from the expansion alternatives. (The writer, Kaushik Narayan is the CEO of Leaptrucks, the biggest platform for used vehicles in India. He’s a contributor to ETAuto.)

Additionally Learn:
The nation’s second-largest truck maker Ashok Leyland mentioned there was pent-up demand for vehicles in India as the common age of a truck in India at the moment was 9.5 years, which is among the many oldest ever, as fleet homeowners deferred buy of recent autos over the previous couple of years, mentioned Gopal Mahadevan, director and chief monetary officer at Ashok Leyland.
In keeping with CRISIL, working margin, which is predicted to be flat this fiscal due to a cloth enhance in uncooked materials costs, will increase sharply within the subsequent. The resultant larger absolute income, in flip, will drive an enchancment within the credit score metrics of CV producers.



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