India's CV volume growth likely to moderate at 8-10% in FY24: Report 
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India's CV volume growth likely to moderate at 8-10% in FY24: Report Indian commercial vehicle (CV) industry is likely to record moderate volume growth of around 8-10 per cent in FY24 amid increased government thrust on infrastructure spending, said a report on Tuesday.
The operating margins of the top three CV players are expected to improve further by around 150 bps to 14% over the medium term on the expectations of improvement in realisation and easing commodity input costs, said CarEdge in its report.
“With tailwinds like healthy replacement demand, increased freight movement and increasing government infra spending and a continued boom in e-commerce, the CV industry is expected to continue its growth momentum in FY24 with moderate volume growth of 8-10%,” said Arti Roy, Associate Director at CarEdge.
“Exports are likely to remain subdued for the current fiscal year,” Roy added.
CV industry witnessing strong upcycle
Between FY01 and FY21, the three complete cycles, achieving volume growth rates of 2.8 times, 1.6 times, and 0.9 times, respectively.
The relatively lower growth observed in the period from FY16 to FY21 can be attributed to various challenges, including the liquidity crisis faced by non-banking financial companies (NBFCs), the relaxation of axle norms, increased vehicle costs due to the transition to Bharat Stage VI (BS-VI) emission standards and higher insurance premiums, elevated fuel prices, and an economic contraction.
To compound the difficulties, the Covid-19 pandemic further exacerbated the situation, resulting in the lowest volume levels in fiscal year 2020 compared to the past decade.
However, the CV industry is currently experiencing a robust upcycle, evidenced by a volume growth rate of 1.7 times over the past two years.
Moderation of volume growth in FY24
During FY22 and FY23, the CV industry reported strong year-on-year volume growth of around 30.7% and 28.7% respectively on account of pent-up demand as the economy recovered from the Covid-19 pandemic.
The CV industry is likely to record moderate volume growth of around 8-10% in FY24 as the pent-up demand levels off, and muted volume growth in exports on account of the uncertain global environment amid inflationary concerns.
The demand remains strong across all the segments. Segment-wise, medium, and heavy commercial vehicles (MHCV) are expected to grow by 10-12% in FY24, while light commercial vehicles (LCV) are likely to grow by 6-8%.
The demand for LCV continues to be impacted due to high-interest rates and high base effect. During FY22 and FY23, the MHCV segment reported strong year-on-year volume growth of around 53% and 39.7% respectively, while the LCV segment reported growth of around 21.7% and 23.1% respectively
Operating margins to improve further in FY24
The average operating margins for the top three players in the CV industry have been improving gradually q-o-q over the past two years from 3.39% in Q1FY22 to around 12% in Q4FY24.
This was supported by multiple price hikes taken over the quarters, easing commodity input costs and favourable operating leverage as the overall demand and product mix improved.
The average operating margins of the top three players are expected to improve further by around 150 bps to 14% over the medium term on the expectation of improvement in realisations and stable commodity input costs.
The aggregate of the top three CV players’ total operating income has also exceeded FY19 levels
The report also added that sustenance in demand supported by improved realisations amid price hikes taken over the quarters and easing commodity input prices would translate to improvement in profitability margins going ahead.
CarEdge is one of the leading credit rating company with over 15 years of experience in providing credible high-quality research, analytics, risk and compliance solution.
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