India Commercial Vehicle sector on a strong growth path
Low base likely to push growth further in coming months
The Commercial Vehicle (CV) sector, which is considered to be the barometer of an economy, recorded a surge of 19.9% in unit sales during FY18. The remarkable feature of this growth has been recovery post GST implementation (Image 1). Overall sales of CVs increased by 34% and 31% respectively in Q4CY17 and Q1CY18 after a decline of 9% in Q2CY17.
[Image 1: India CV quarterly unit sales and y-o-y change]
At the same time, the 12-month moving sum of CV sales witnessed sharp northwards movement post July-17 (Image 2). We assign this surge to fleet owners’ bulk buying post GST implementation. Moreover, this trend is expected to continue in coming months given improved macro-conditions at ground level, huge pent-up demand, the higher average age of the fleet and lower comparable (Q2CY17 was down 9% y-o-y).
[Image 2: India CV unit sales 12-month moving sum]
Another highlight of this recovery has been a better mix in overall CV sales. The heavy truck share has crossed 28% in Q4CY17 for the first time in last 3 years. It continued to stay at an impressive level of 27% in Q4CY18. A higher share of heavy vehicles means a better bottom line for CV OEMs and this has been reflected in the way market has reacted to their stocks.
[Image 3: Market share for Light and Heavy trucks]
The robust demand for CVs in FY18 has augured well for top 3 manufacturers. Tata Motors, Mahindra & Mahindra (M&M) and Ashok Leyland have recorded double-digit growth in unit sales post-June 2017 quarter on a year-on-year (y-o-y) basis. At the same time, top 3 CV players have also reported positive growth in the previous 3-quarters on a sequential basis.
Tata Motors, India’s top CV manufacturer by market share, outperformed the industry growth consistently in the previous 3-quarters.
[Image 4: CV unit sales performance for Top 3 players]
Ashok Leyland, which is the only pure CV player in India, emerged as a key beneficiary of strong demand in FY18. The shares of Ashok Leyland outperformed both M&M (14.8%) and Tata Motors (-29.8%) with a gain of 72% in FY18.
[Image 5: Compare screen highlights monthly share price & CV unit sales for Ashok Leyland and India manufacturing PMI]
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