ICRA said that it continues to maintain a negative outlook for the commercial vehicle (CV) segment over the near-term, given the slowing economic growth, current overcapacity in the CV ecosystem and not so benign financing environment, with challenges further aggravated by the recent and rapid spread of novel coronavirus in India. The demand headwinds are expected to continue over the near-term given the macroeconomic challenges in view of the recent pandemic outbreak, coupled with weakening financial profile of fleet operators and significant price hikes because of transition to BS-VI emission norms. This would exert pressure on earnings and overall credit profile of CV OEMs, which have witnessed sharp earnings contraction over the past 3-4 quarters.
Shamsher Dewan, Vice President, ICRA, said that in particular, the M&HCV (truck) segment has been significantly impacted over the past year, with volumes contracting by a sharp 42 per cent in 2019-2020.
The excess capacity created in the system after the revision of axle load norms in July 2018 and faster turnaround of vehicles post GST implementation, coupled with a slowdown in the economy and infrastructure projects and the resultant lower freight availability continue to weigh on demand prospects.
Moreover, the rapid spread of coronavirus and the lockdown imposed in the country has had a significant impact on the movement of goods and freight availability over recent weeks and is likley to continue over the near-term. Accordingly, the outlook for the next fiscal, especially the first half, remains weak given the macroeconomic headwinds in view of recent pandemic outbreak coupled with significant price hikes because of transition to the new emission norms. Any recovery in the latter half hinges on a pick-up in construction activity. However, despite some channel inventory filling measures of OEMs, M&HCV (Truck) sales are expected to close the upcoming fiscal with a further decline of 12-14% during FY21, said Dewan
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