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Commercial vehicle volumes to contract 25-28% in FY21; outlook negative: ICRA

Over-capacity, subdued freight availability, financing constraints are some of the challenges that have restrained the outlook to 'negative', said the agency

twitter-logoBusinessToday.In | November 5, 2020 | Updated 10:30 IST
Commercial vehicle volumes to contract 25-28% in FY21; outlook negative: ICRA

Commercial vehicles volumes are expected to shrink 25-28 per cent this fiscal as the sector braves the impact of the pandemic. The outlook for the sector remains 'negative' too, due to the continuing challenges, said ratings agency ICRA on Wednesday. CV domestic volumes stood at  7,17,688 units as against the all-time high of 10,07,311 vehicles in 2018-19.

Over-capacity, subdued freight availability, financing constraints are some of the challenges that have restrained the outlook to 'negative', said the agency. ICRA added that it expects volumes in FY2021 to contract by 25-28 per cent, which would bring the industry volumes down to the lowest level in more than a decade. 

"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 agency conducted a survey covering 26 commercial vehicle dealers from 11 states in October to gauge the trends at the ground level as well as to understand the current challenges of the sector.

Dewan said that the industry has been expecting the down-cycle to extend into the current fiscal as increased vehicle prices after the transition to BS-VI norms added to the list of existing challenges. "However, the extent of the contraction has been worse than expected, on account of the challenges brought about by the pandemic," Dewan added.

He added that 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 added to the woes of the sector.

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.

Financing remains one of the biggest challenges of the sector. Financing institutions are being increasingly cautious in lending to the CV segment.

Also read: Scrappage policy: Carmakers to give 1% discount on new vehicles if old one is junked

Also read: Strong exports drive Bajaj Auto two-wheeler sales to record high in October

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