Domestic commercial vehicle sales volume likely to grow by 9-11% in FY24

Domestic commercial vehicle sales volume is likely to grow 9-11% in FY24 driven by medium and heavy commercial vehicles and an estimated economic growth of around 6%, says rating agency CRISIL.

Domestic commercial vehicle sales volume is expected to grow 9-11 per cent in FY24 driven by medium and heavy commercial vehicles and an estimated economic growth of around 6 per cent, rating agency CRISIL said on Monday.

Besides, an increased allocation to infrastructure spending in the Union Budget for next fiscal year will support demand, it said.

This would be the third consecutive year of growth in the domestic CV industry, according to CRISIL.

Of the total domestic CV sales, the light commercial vehicle (LCV) segment may grow 8-10 per cent while the medium and heavy commercial vehicle (MHCV) sale is expected to register a higher growth of 13-15 per cent in FY24, it said.

With strong demand prospects, we expect LCV sale volumes to grow 8-10 per cent next fiscal, and cross pre-pandemic (fiscal 2019) sale volumes. MHCV sale volumes will continue to grow faster than LCVs at 13-15 per cent next fiscal, but are expected to exceed pre-pandemic sale volumes in fiscal 2025, said Anuj Sethi, Senior Director at CRISIL Ratings.

Domestic CV sales volume was 31 per cent up year-on-year in 2021-22 while the sales volume in current fiscal is expected to surge around 27 per cent as demand bounced back on increased activity in the roads, mining, real estate and construction sectors, as well as focus on last-mile connectivity, the rating agency said.

Besides higher volume, a 2-5 per cent increase in realisations as original equipment manufacturers (OEMs) comply with BS VI-Stage II norms, and benefit of lower commodity prices, especially steel, will help improve operating profitability to a four-year high of 7-7.5 per cent next fiscal from an estimated 5-6 per cent this fiscal.

Strong balance sheets and healthy liquidity helped offset profitability pressures ensuring 'Stable' credit profiles of CV manufacturers in the recent past, said Anil More, Associate Director at CRISIL Ratings.

The expected improvement in operating profitability in the current and next fiscals, and only modest capital spending needs (given utilization rate at around 70 per cent) will ensure improvement in the key debt metrics, and keep credit profiles stable, he said.

These debt metrics were impacted during the pandemic years, according to More.