By Kaushik Narayan
The business automobile (CV) trade is off to a really robust begin with a formidable 77% development throughout April – August. The revival on this interval was led by the bus phase adopted by the Medium & Heavy Commercial Vehicle (M&HCV), Intermediate & Light Commercial Vehicle (I&LCV) and the Small Commercial Vehicle (SCV) segments.
In the primary 5 months of FY23, the highest 5 producers have bought 3.6 lakh automobiles towards the sale of seven lakhs for the total 12 months final 12 months. A mixture of uptick in demand normally seen in H2 fuelled by a robust Festival season leaves the trade to have a breakout 12 months in FY23.
The trade indicators like OEM gross sales, consumption alerts, freight demand, truck utilisation and freight charges assist us perceive higher the CV trade efficiency and well being of the trade. We additionally take a look at the most important developments that drive the CV and logistics trade.
Sales by OEM: The general trade grew 87% YOY towards a low base (because of the affect of Covid final 12 months). The prime 5 producers clocked 3,63,000 models in Year to this point (YTD) of FY23 vs. 2,06,000 lakh models in the identical time final 12 months. Tata Motors has assumed its dominant place on the prime of the CV Industry with Mahindra retaining the second place adopted by Ashok Leyland, VECV, and Maruti Suzuki.
Sales by Segment: SCVs retained the management by phase when it comes to unit gross sales. However, the M&HCV phase and the bus phase each posted spectacular development in contribution to general trade volumes. The bus phase rebound was pushed largely by the varsity phase. The I&LCV phase contribution continued to stay robust with a small development this 12 months. Tata Motors was the market chief in I&LCV, M&HCV and bus segments and got here in a robust second behind Mahindra within the SCV phase.
Macro indicators: The Indian economic system continues to stay robust regardless of world challenges. The struggle in Ukraine and a ensuing world recession may even have an effect on India. It has led to excessive crude oil, cooking oil and commodity costs which have in flip led to excessive inflation. With the RBI actively growing rates of interest, inflation has plateaued. However, regardless of these challenges, India is on observe to finish the 12 months with a development of 5% to 7% and is predicted to complete the 12 months because the quickest rising nation on the earth this 12 months.
Consumption demand: FMCG firms, who’re good indicators of family demand have reported wholesome development within the first half of the 12 months. The vehicle trade has additionally had a very good begin to the 12 months; the 2-wheeler and 3-wheeler industries have resumed development and most OEMs within the automotive trade are at present seeing vital ready intervals for fast paced fashions. Parcel companies and E-commerce proceed to develop together with agricultural items. Consumption of capital items together with mining, cement and metal have additionally resumed after an extended hiatus which bodes properly for operators.
Fastag Receipts: Fastag assortment continued to remain robust in H1 this 12 months. The common every day assortment in Q1 was 72% larger than that from the identical interval final 12 months. The consistency of Fastag assortment in Q1 at round Rs.141 crores per day and the expansion over each the identical interval final 12 months and a robust This fall common of Rs. 126 crores per day bodes very properly for freight demand in FY23. Fastag receipts carry a robust correlation with freight site visitors since a overwhelming majority of assortment comes from the CV trade.
E-way Bills: E-way payments are paperwork issued for motion of products interstate or intrastate. E-way payments generated within the first 4 months of the 12 months grew by over 38% vs. the identical interval final 12 months (30 crore payments FY23 vs. 21.7 crore payments in FY22). More importantly, E-way payments generated in every of the primary 4 months fell inside 6% of the all time excessive of seven.81 crores achieved in March 2022. Freight demand has constantly remained robust in H1 of FY23.
Truck Utilisation: Truck utilisation has additionally remained excessive in FY23. In the primary 4 months of the 12 months, Leaptrucks estimates utilisation to have averaged a really wholesome 86%. This is significantly larger than utilisation ranges seen prior to now 2 years and has additionally crossed the utilisation ranges seen in This fall final 12 months. High utilisation ranges be sure that vehicles spend extra time operating and incomes cash for operators with low idle time. This ensures that operators stay worthwhile and financially wholesome.
Freight charges, operator profitability
Steady freight charges: Freight charges proceed to stay robust throughout most segments. The FreightIndicators report just lately printed by CRISIL indicated that charges continued to stay robust in agricultural merchandise, FMCG, market load, mining, cement and parcel / courier segments. Auto carriers, containers, petroleum tankers, metal and textile segments are but to see vital enchancment in charges. CRISFrex, the CRISIL index monitoring freight, has additionally remained constant over the past 3 months due to steady diesel costs regardless of fluctuations in crude.
Healthy free money flows and operator profitability: The free money circulation of operators has remained regular over the previous 8 months. Steady demand, larger utilisation and improved freight charges have all contributed to free money circulation pre-EMI (Finance prices) of practically 20%. Higher utilisation of vehicles and regular profitability for operators will proceed to drive demand for CVs in H2.
CV trade developments
Impact of macro-economic elements on operators. Low affect of rising rates of interest: Interest charges have risen 3 instances in 2022. Rising rates of interest have impacted financing prices and in flip the EMI of operators. However, so long as freight charges stay regular and utilisation stays excessive, the affect of upper rates of interest won’t considerably affect CV trade volumes.
Easy availability of credit score: All banks and NBFCs have posted glorious ends in the just lately concluded quarter and have introduced their NPAs beneath management. The CV trade supplies an amazing alternative for each banks and NBFCs to disburse funds. NBFCs and banks that have been cautious in FY22 have turned aggressive. Others that had a really poor penetration within the CV trade are additionally ramping up their presence resulting in straightforward availability of credit score at engaging Loan to Value (LTV) ratios for CV consumers.
Lower demand for CNG automobiles: The penetration of CNG vehicles in SCVs and I&LCVs had grown to just about 30% of the general CV trade in Q2 and Q3 FY22. In Delhi, the value distinction was nearly INR 46 final 12 months. This 12 months, the value differential is right down to INR 14. In many different markets throughout India, the differential is even smaller at INR 5 or decrease. Over 30% to 40% of consumers had transitioned to CNG vehicles within the SCV & I&LCV segments final 12 months because of the worth differential. However, extra clients have returned to diesel vehicles in FY23.
Lower uncooked materials costs: Steel and aluminium costs have softened beginning Q1 FY23. It is roughly estimated that 65% or extra of truck costs might be immediately attributed to uncooked materials costs. However, OEMs haven’t but been capable of realise the optimistic affect of the value drop in Q1 and Q2. They anticipate a optimistic affect to profitability beginning Q3 FY23.
High reductions: Customers throughout segments proceed to take pleasure in excessive reductions. Intense competitors and out there capability have put operators in a pole place whereas negotiating offers. It was just lately reported that Tata Motors is working with McKinsey to enhance profitability. We anticipate that every one OEMs will actively scale back reductions in H2 which ought to positively affect their outcomes.
Semiconductor provides: The affect of semiconductor provides has not critically impacted the gross sales of the highest 5 OEMs. We anticipate the affect to be restricted for the remainder of the 12 months. However, Bharat Benz has seen challenges in provides of its Heavy-Duty vehicles as a result of restricted availability of semiconductors.
OEM inventory efficiency: Auto OEM shares have all been on hearth just lately. Most brokerages have been bullish on auto OEM shares, particularly passenger automotive OEMs since most of them are sitting on giant again orders towards profitable new launches. Most OEMs with a significant CV presence both have a big presence within the automotive phase like Mahindra and Tata Motors and Maruti, or like Eicher Motors that has a big presence in 2-wheelers. The solely pure-play CV OEM is Ashok Leyland which has returned 35% over the previous 1 12 months vs. the BSE Sensex that has returned 2% in the identical interval. At the identical time, Eicher Motors has returned 26%, Maruti 30%, Tata Motors 59% and Mahindra a really spectacular 76%. We consider that these shares have nonetheless not factored within the true development potential in CVs within the present pricing.
Expected development for the 12 months: At Leaptrucks, we had estimated that the CV trade would have a robust 12 months rising between 23% and 34% in FY23. We reiterate our estimate and anticipate the expansion price to settle nearer to the upper finish of our estimates primarily based on developments witnessed in H1 this 12 months.
(Disclaimer: Kaushik Narayan is CEO of Leaptrucks. It is a number one platform for the sale and buy of used vehicles, buses and building machines in India. Views are private)