The domestic commercial vehicle (CV) industry’s wholesale volumes is expected to witness a modest year-over-year (YoY) growth of 0- 3 percent in FY2025, revised from a previously estimated decline of 4-7 per cent, stated a report by ICRA. This adjustment follows better-than-expected growth in the first four months of FY2025 and anticipations of a slight increase in demand in the latter half of the fiscal year. FY2025 will mark the second consecutive year of subdued growth, following 1 per cent and 3 per cent YoY increases in wholesale and retail sales respectively in FY2024, it added.
Kinjal Shah, Senior Vice President & Co-Group Head – Corporate Ratings, ICRA, said, “A range of factors such as the slowdown in infrastructure activities during the General Elections, as well as extreme heat waves across the country, had some bearing on demand in Q1 FY2025. However, volumes in this period exceeded ICRA’s expectations. Looking ahead, ICRA expects a recovery in volumes in H2 FY2025 aided by a back-ended Government capex, some pick-up in private capex across manufacturing sectors, and an improvement in rural demand, following visibility around the Kharif crop output and farm cash flows. The replacement demand would also remain healthy (primarily due to the ageing fleet) and is expected to support the industry volumes in the medium term. The long-term growth drivers for the domestic CV industry remain intact, like the sustained push in infrastructure development (evidenced by retaining the higher infrastructure capital outlay in the July 2024 budgetary allocation), a steady increase in mining activities, and the improvement in roads/highway connectivity.”
Among the CV segments, medium and heavy commercial vehicles (M&HCVs) are forecasted to see 0-3 per cent YoY growth in FY2025, influenced by a high base effect and initial impacts from the General Elections. Within this category, tipper volumes contracted by 4 per cent YoY in Q1 FY2025, while haulage volumes grew modestly by 3 per cent. Tractor-trailer volumes increased by 7 per cent YoY in Q1 FY2025.
Meanwhile, light commercial vehicles (LCVs) are expected to experience a limited YoY growth of -1 per cent to 2 per cent due to a high base effect, reduced e-commerce activity, and competition from electric three-wheelers. The rise in total ownership costs has also shifted preference towards pre-owned vehicles among small fleet operators. Per the report, the bus segment is projected to grow by 8-11 per cent YoY in FY2025, driven by the scrapping of older government vehicles and increased demand from state road transport undertakings.
In terms of powertrains, diesel remains dominant, with alternative fuels like CNG, LNG, and electric accounting for 9 percent of sales in FY2024. Electric vehicles (EVs) have higher penetration in buses and light commercial goods vehicles.
ICRA expects the operating profit margin (OPM) for domestic CV OEMs to remain stable in FY2025 at 9.5 -10.5 percent, despite competitive pressures and muted volumes. The OPM in FY2024 was 10.7 per cent, benefiting from operating leverage, better product mix, and lower discounting. Capital expenditure is projected to rise to Rs 56-58 billion in FY2025 from Rs 34 billion in FY2024, focusing on product development and technology upgrades.
ICRA foresees stable credit metrics for the industry in FY2025, with a slight margin contraction and increased capital expenditure. Coverage metrics are expected to improve, with a projected total debt/OPBITDA ratio of 1.2-1.4 times and interest coverage at 6.8-7.2 times.
From: financialexpress
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