Commercial vehicles volumes to contract 25-28% this fiscal: Icra

The outlook for the commercial vehicles sector remains negative on the back of continuing challenges such as over-capacity, subdued freight availabili
File photo of Ashok Leyland commercial vehicle. (Photo courtesy: Ashok Leyland)
File photo of Ashok Leyland commercial vehicle. (Photo courtesy: Ashok Leyland)

Commercial vehicles (CV) volumes are expected to shrink 25-28 per cent this fiscal amid multiple headwinds along with the pandemic impact, and the outlook for the sector remains "negative" on the back of continuing challenges, ratings agency Icra said on Wednesday.

In the previous fiscal, CV domestic volumes stood at 7,17,688 units as against an all-time high of 10,07,311 vehicles in 2018-19.

The outlook for the commercial vehicles (CV) sector remains 'negative' on the back of continuing challenges such as over-capacity, subdued freight availability, financing constraints, among others, all of which have compounded due to the pandemic, Icra said in a release.

Also check these Bikes

Find more Bikes
White Carbon Motors O3 (HT Auto photo)
Range Icon60 km/charge
Yobykes Yo Drift (HT Auto photo)
Range Icon60 km/charge
Honda Cb350rs (HT Auto photo)
Engine Icon348.0 cc Mileage Icon36.0 kmpl
₹ 1.90 - 2.19 Lakhs
View Offers
Yamaha Xsr125 (HT Auto photo)
Engine Icon124.0 cc Mileage Icon47.6 kmpl
₹ 1.35 Lakhs
View Details
Yezdi Motorcycles Yezdi Adventure (HT Auto photo)
Engine Icon334.0 cc Mileage Icon33.0 kmpl
₹ 2.09 - 2.18 Lakhs
View Offers
Tvs Fiero 125 (HT Auto photo)
Engine Icon125 cc Mileage Icon67.0 kmpl
View Details

The ratings agency said it expects the volumes in FY2021 to contract by 25-28 per cent, which would bring industry volumes down to the lowest levels in more than a decade, it said.

Also Read : Car and two-wheeler sales rising during festive season: Ind-Ra report

ICRA conducted an extensive survey, covering 26 CV dealers from 11 states in October to gauge the trends at the ground level and to understand the current challenges of the sector.

"The domestic CV segment was already in the midst of several headwinds in FY2020 and witnessed a steep volume contraction of 29 per cent," Icra Vice President Shamsher Dewan said.

"The industry had been expecting the down-cycle to extend into the current fiscal as well, as increased vehicle prices post transition to new emission norms (BS-VI) would have added to the existing plethora of challenges. However, the extent of the contraction has been worse than expected, on account of the challenges brought about by the pandemic," Dewan added.

File photo of Tata Motors' commercial vehicles
File photo of Tata Motors' commercial vehicles

The existing challenges such as overcapacity in the trucking system, subdued freight availability due to a weak macroeconomic environment, financing constraints, and stress on the cash flows of fleet operators have all exacerbated with the onset of the pandemic and the lockdowns imposed to contain the same, he said.

Accordingly, fleet operators have pushed new vehicle purchases to the backburner, as is evident from the 85 per cent and 55 per cent contraction in overall CV retail volumes witnessed in Q1 and Q2 FY2021, respectively, Dewan added.

An overwhelming 85 per cent of the dealers indicated during the survey that sales volumes continued to contract till September 2020, and despite sequential improvement, the current demand environment remains overall muted, because of the challenges, Icra said.

Stating that financing remains a major impediment to sales, it said one of the key challenges highlighted was that the stress in the fleet operator segment had turned financing institutions increasingly cautious in lending to the CV segment.

Also Read : Daimler India Commercial Vehicles reaches 35,000 vehicles export milestone

However, on a positive note, the survey also indicated that 50 per cent of the dealers reported inventory levels of less than three weeks, while another 42 per cent reported between 3-5 weeks.

The original equipment manufacturers (OEMs) have had to extend limited support in the form of financing or incentives to dealerships during this period, as inventory levels were quite low.

Additionally, they have been supportive in not pushing excessive inventory towards dealerships, as the demand environment remains subdued, Icra said.

Dealerships have also turned cautious on the discounting front, with more than half of the dealers indicating discount levels of less than 10 per cent. This is significantly lower than discounts reported last year as dealers struggled to liquidate the BS-IV inventory that would turn obsolete with the transition to BS-VI norms from April 1, 2020, it said.

"ICRA expects significant double-digit contraction with the impact to be higher for the M&HCV (medium and heavy commercial vehicle) (truck) and the buses segments. The LCV (light commercial vehicle) (truck) segment is expected to fare relatively better, supported by warm rural sentiments and increasing requirements for last-mile transportation," Dewan added.

First Published Date: 05 Nov 2020, 09:43 AM IST

Please provide your details to get Personalized Offers on

Choose city
+91 | Choose city
Choose city

Want to get the best price for your existing car?

Powered by: Spinny Logo
By clicking "View Offers" you Agree to our Terms and Privacy Policy
Dear Name

Please verify your mobile number.

+91 | Choose city
Couldn't verify the OTP.
It's either expired or it's incorrect.