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26Th Aug 2016
 |
| MHCV (The Total Investment & Insurance Solutions) |
The decline in the year on year sales growth
in the medium and heavy commercial vehicles (MHCV) segment in June-July 2016 is
a digression of the trend observed previously, says India Ratings and Research
(Ind-Ra). The agency says it believes that persistence in the slowdown in MHCV
volumes in the next two to three months could point towards a change in the
MHCV cycle.
It said, "Historically, MHCV sales
display a high degree of seasonality, with weak sales in the month of December
due to the preference of buyers to purchase vehicles bearing the registration
number of the next year (for better pricing in the second hand market),
followed by a steady uptick in volumes in the following three months, namely
January-March. Sales tend to peak around the month of March every year, as
fleet owners increase purchases in fourth quarter to avail of depreciation
benefits and use up their budgets and auto original equipment manufacturers
(OEMs) push sales to their dealers to achieve annual sales targets." The Total Investment & Insurance
Solutions
Naturally, the month of April each year
registers the lowest sales due to sales peaking in March. However in May, June
and July sales volume start their upward trend again. "It may be noted
that in 2016, the sales volume growth from June onwards has been muted. For
June 2016, on a year on year basis, the volume growth slowed to 1.9% compared
to the growth of 21% in June 2015, while for July 2016 volumes contracted by
7.6% compared to growth of 30% in July 2015."
Ind-Ra says it will be closely monitoring
MHCV domestic sales volumes for the next few months, as it believes that a
steadily declining trend would possible indicate a reversal of the sales trend
in this segment. The Total Investment
& Insurance Solutions
Ind-Ra had earlier highlighted that auto
sales in FY17 will be driven by the MHCV segment. In January 2016, Ind-Ra had
estimated MHCV volumes to grow by 12%-15% year-on-year (yoy) in FY17 driven by
demand for high tonnage vehicles to achieve cost efficiency in operations and
replacement demand of old vehicles. The Total Investment & Insurance Solutions
The ratings agency says, the upturn in the
MHCV cycle began around January 2014. The yoy growth was very strong at 30% in
FY16 and 16% in FY15. "As per our assessment, the growth is attributed to
pent up demand, some pre-emptive purchases in August-September 2015 (due to new
safety features being made compulsory from October 2015 - which increased
prices) and improved cash flows of fleet operators due to the decline in diesel
prices and the entire decrease not being passed on to clients. Another factor possibly
supporting MHCV sales is the uptick in mining and the increase in
infrastructure spending by the government in FY16/FY17, compared with previous
years," it said.
According to Ind-Ra, consistent demand had
been witnessed in FY15 and FY16 in the higher tonnage segment of MHCVs (above
25T) typically used for long haul - fleet owners seem to be intent on reducing
their per ton transportation costs by taking advantage of better road
infrastructure in the country. The data compiled by Society of Indian Automotive
Manufacturers (SIAM) for June and July 2016 indicates a decline of 9.2% and
24.9% respectively, in this segment in these two months.
The surge in the demand for MHCVs witnessed
in the past two years is not corroborated by the Index of Industrial Production
(IIP), which has displayed an inconsistent trend in this period. Growth figures
for MHCVs is also not supported by data on foreign direct investments in the
country, with the major proportion of investments by foreign institutional
investors (FIIs) in FY16 having been in the services sector, rather than in
manufacturing. The Total Investment
& Insurance Solutions
In addition, growth in the gross fixed
capital formation, which is an indicator of an uptick in economic activity, has
been tapering down in the past three years (FY16:3.3%, FY15: 7.9%, FY14:
13.6%). Further, capacity utilisations across industries have not improved,
even growth in exports while positive, continue to be tepid. In addition,
freight rates after declining towards the end of FY15 have remained flat in
FY16, with a slight increase in certain sectors in the current financial year,
the ratings agency added.The Total
Investment & Insurance Solutions
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