Domestic CV sales volume likely to moderate to 8-10% in FY24: CareEdge Ratings

As the pent-up demand abates, the domestic commercial vehicle (CV) industry is likely to record a moderate volume growth of around 8-10 percent in FY24, amid increased government thrust on infrastructure spending, despite expected muted export volume growth, as per a latest CareEdge Ratings report. 

The CV industry is likely to record volume growth due to the strong upcycle the industry is witnessing despite the high base effect, as the rating agency highlighted. Currently, the CV industry is experiencing a robust upcycle, evidenced by a volume growth rate of 1.7 times over the past two years, the report said.

Furthermore, it mentioned that segment-wise, medium, and heavy commercial vehicles (MHCV) are expected to grow by 10-12 percent in FY24, driven by the mandatory scrapping of government vehicles, boosting healthy replacement demand, increasing freight movement amid a continuing strong infrastructure push by the government, and increasing housing, construction, and mining activities, while light commercial vehicles (LCV) are likely to grow by 6-8 percent, aided by last-mile connectivity demand, boosting e-commerce activities.

During FY22 and FY23, the MHCV segment reported strong year-on-year volume growth of around 53 percent and 39.7 percent, respectively, while the LCV segment reported growth of around 21.7 percent and 23.1 percent, respectively.

According to the report, the operating margins of the top three CV players are expected to improve further by around 150 basis points to 14 percent over the medium term on the expectation of improvement in realisations and easing commodity input costs. The aggregate of the top three CV players’ total operating income has also exceeded FY19 levels, it added. 

“With tailwinds like healthy replacement demand, increased freight movement and increasing government infrastructure 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 percent. Exports are likely to remain subdued for the current fiscal year,” said Arti Roy, Associate Director, CareEdge Ratings.

CareEdge Ratings also noted that sustenance in demand, supported by improved realisations amid price hikes that have taken place over the quarters, and easing commodity input prices, would translate to improvement in profitability margins going ahead.