In what is good news for the Indian auto industry, sales of the medium and heavy commercial vehicle (M&HCV) segment – considered to be a barometer of the economy – which has seen a sustained decline over the past three months, have turned positive in October 2016.

Demand for M&HCVs last month saw an improvement across various sectors including construction, auto logistics, cement, petroleum products and FMCG / consumer durables segments. 

Lead players Tata Motors and Ashok Leyland have both witnessed strong growth in their M&HCV numbers. After recording consistent growth for almost two years, both OEMs has seen M&HCVs sales dip in July, August and September as a result of slackening replacement demand and hampered movement due to monsoon in parts of the country.

Now, with the improved market sentiment, gradual resurgence of demand from rural India following a near-normal monsoon across the country, and improvement in fleet buying, M&HCV manufacturers will be keeping their fingers firmly crossed, hoping that the positive trend continues.

The return of M&HCV numbers to the black confirms what senior industry personnel have been saying. In a recent interview to Autocar Professional, RT Wasan, vice-president (Sales and Marketing), Commercial Vehicle Business Unit, Tata Motors, HAD said: “The drop in M&HCV numbers is due to very high growth last year. The sharp drop in the cargo segment in June, July and August 2016 is due to the monsoon, freight availability and freight rates and the replacement demand slowing down. But the tipper segment, which did not have a strong growth base last year, is doing quite strongly at over 30% and continuing to grow. We see the market bouncing back. With the monsoon season over, agriculture will also pick up, the festival season is coming up and typically demand in the second half of the fiscal is better.”

Read more: How slowing M&HCV sales impacted overall CV numbers in H1 FY2017

The Indian Foundation of Transport Research & Training (IFTRT), which tracks truck movements in the country, in its mid-month truck rental update, said: “With businesses at their peak due to the festival season, kharif harvest and consumer spending buoyant , low inflation for food items and consequent cargo offerings from agriculture, factories and improved foreign trade volume pushed up truck rentals during October 2-17 by 3-3.5 percent. The maximum demand for freight movement came from SME units, car and two-wheeler transportation, consumer durables, FMCG, general merchandise , cement ,timber and various high value marble and tiles.”

However IFTRT cautioned that “fleet owners are still not in truck fleet expansion mode and are in wait-and-watch mode because of the incoming GST and BS-IV buying, among other issues, which may unfold during January- March 2017.”

How the truck makers fared

M&HCV sales numbers for October 2016 from various OEMs are a clear indication of a strong recovery. Ashok Leyland, Tata Motors and VE Commercial Vehicles have reported higher sales for the month. 

Tata Motors recorded its highest-ever CV sales this year, selling 30,169 units in the domestic market in October 2016, up 15% (October 2015: 26,119). Sales of its M&HCVs recovered by 9% after posting dips for the last three months. M&HCV demand saw an improvement across various sectors including construction, auto logistics, cement, petroleum products and FMCG / consumer durables. The company’s LCV sales continued their upward trend by notching 21% growth in October 2016.

Ashok Leyland’s total sales increased substantially by 28% YoY with sales of 12,533 units (October 2015: 9,803). After three months of a sales decline, its M&HCV numbers rose 33% to 9,574 units (October 2015: 7,176). The company’s LCV sales were up 13% at 2,959 units  (October 2015: 2,627).

Mahindra & Mahindra’s total CV sales dropped 4% at 18,059 units (October 2015: 18,756). M&HCV numbers were down by 19% with sales of 471 units (October 2015: 581). The below-3.5T GVW products saw a dip of 3% with sales of 17,182 units (October 2015: 17,770), while those in the above-3.5T GVW segment comprised flat sales at 406 units (October 2015: 405 units).        

VE Commercial Vehicles maintained its double-digit growth with 11.2% with total domestic sales of 3,854 units (October 2015: 3,466 units).

FY2017 growth outlook for the sector

According to apex industry body SIAM, in FY2017, M&HCV sales expected to remain flat. Despite the dip in sales in the first half of the fiscal, an improvement in the overall economy led by an increase in industrial and agricultural output is expected to aid demand.

As a result of well distributed rainfall after three consecutive years, rural consumption is expected to revive. What will lead to higher volumes will be buyers advancing sales in Q4FY17 due to all-India mandatory BS IV implementation from April 1, 2017. Replacement cycles of 2011 models will also lead to higher volumes.

On the GST front, there are a few aspects which are making transporters circumspect regarding their buying decision: There is uncertainty around the discounts which transporters can avail in FY2018, owing to GST. Warehouse re-alignment is also expected and hence transporters are unsure about the type of vehicle which will be required to serve demand. Also keeping in mind the shift in warehouses at end-user level, transporters fear a loss in business and hence might delay their buying decision.

SIAM says tractor-tipper demand in 2016-17 is expected to grow in double digits on a high base. This is because end-use segments like cars, cement and steel are expected to do well in H2 albeit weak growth in EXIM and declining replacement demand can drag growth

Tippers are expected to post healthy growth due to speedier execution of construction of National Highways as well as a pick-up in the pace of infra and construction segments after the monsoon.

Recommended: India Sales Analysis - October 2016