Approximately 66% of the goods and 87% of the passenger traffic moves via road. This makes the Commercial Vehicle (CV) Industry, the lifeline of Indian economy. With a domestic market size of approximately Rs.23,275 Crores and export sales of Rs.1,610 Crores in FY 06, the Indian CV industry is the fourth largest manufacturer of CVs in the world.
The industry is overwhelmingly dominated by Tata Motors with Ashok Leyland and Mahindra & Mahindra being distant second and third. Eicher Motors and Swaraj Mazda are some other Indian players in this space.
The industry is cyclical as it draws its demand from the economy. The capital intensity and the high susceptibility to technology changes raise the entry barriers to the industry making it an oligopolistic market. The demand dynamics of the industry is dependent on the general health of the economy, infrastructure facilities (road condition), regulatory environment (emission, loading, aging norms etc.), interest rates scenarios, freight rates and fuel costs. In addition, prices of vehicles, their specifications and applications, fuel efficiency, technological conformity, spare parts availability and manufacturer’s service centre network sway the consumer preference significantly.
The evolving Hub & Spoke model of distribution, improved road infrastructure and the Supreme Court ban on overloading of vehicles have brought about a shift in the consumer demand. The demand has shifted away from vehicles with GVW >12 to<=16.2 tonnes (9 tonne payload carrying vehicle) to vehicles with GVW <=3.5 tonnes and GVW >16.2 tonnes (multi axle vehicles & tractor trailers). The market is now also witnessing increased specialization, with application oriented vehicles viz. cement mixer, LPG carrier, defense vehicles etc being introduced.
The CV industry has been registering positive growth rates since FY 02. Although growth was subdued in FY 06, the Supreme Court judgment on overloading and the evolving Hub & Spoke model has led to stupendous growth of over 38% in FY 07 for the GC segment. The industry sold 5,17,648 vehicles in FY 07 (Domestic sales of 4,67,882 vehicles & Export sales of 49,766). The GC sub-segment of GVW <=3.5 tonnes and GVW of >7.5 to <=12 tonnes and GVW >16.2 to <=25 tonnes have grown at a higher pace in recent times at the cost of CV’s with GVW of >12 to <=16 tonnes and GVW of >5 to <=7.5 tonnes. The sales of tractor trailer (TT) with GVW >35.2 tonnes has also grown at a very fast pace.
The Indian CV manufacturers are now attempting to increase the proportion of export revenues. However, the growth in exports at about 8% in FY 07 was relatively slack compared to the earlier years.
Going forward, CARE Research estimates the domestic GC segment to register a CAGR in the range of 7.5-9% in tonnage terms over the next five years (2007- 2012). The growth may be higher due to emerging export thrust and tightening of the regulatory environment (e.g. strict implementation of ageing norms etc).
The domestic PC segment registered a growth of 4.03% in FY 07. The PC exports growth has remained strong in FY 07, registering a growth of over 84%. The PC demand today is largely driven by the private sector players. The State Transport Undertakings being cash strapped hardly replenish their fleet, thus capping the domestic growth in this segment.
Going ahead, CARE Research estimates the PC segment to grow at a CAGR of 5-7% over the next five years (2007-2012).The segment can grow at a higher rate due to privatization of State Transport Undertakings or even privatization of certain profit making routes.
Just as Indian CV manufacturers are making global forays, so are the global players making Indian forays. MAN AG, International Trucks and Engines Corporation have entered the M&HCV segment through the JV route. Hyundai, Scania, Stokota, Ural are some other International players who have plans to enter the Indian CV market. The competition from local players is also expected to intensify with Bajaj Auto and Piaggio entering the CV market. Moreover, the existing layers viz. Tata Motors, Ashok Leyland have also planned huge capacity expansions.
In the long run, ability to provide high technology products with a wide range covering all the evolving market segments will be the key to success. Hardening of interest rates, increase in operating costs and impending competition from railways are worrisome factors for the industry.
Source:Infibeam.com
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