Icra sees stable credit profile for CV OEMs in medium-term

Domestic rating agency Icra today said credit profile of original equipment makers (OEMs) of commercial vehicles will remain stable in the near to medium-term as it expects a gradual upturn in demand.
The domestic commercial vehicle (CV) industry started witnessing signs of recovery after two years of a down cycle on the back of replacement-led demand, favourable pricing owing to excise duty cut and continuation of discounts by OEMs. This should help the OEMs to help maintain a stable credit profile, Icra said in a report.
However, the report pointed out that unlike medium and heavy trucks, the light commercial vehicles (LCV) segment is expected to grow at modest 4-6 per cent this fiscal as segment's prospects continue to be influenced by overcapacity issues and constrained financing environment amidst rising delinquencies.

There has been a sharp recovery in truck sales in recent quarters which will help the industry register 12-14 per cent growth in 2015-16, driven by continuing trend towards replacement of aging fleet and expectations of pick-up in demand from infrastructure, mining and industrial sectors.
In contrast, the LCV truck segment continues to struggle owing to surplus capacity and challenging financing environment amidst rising NPA levels, the report said.
The buses segment has also started showing signs of recovery in sales from third quarter of 2015-16 on the back of the JNNURM backed order by state road transport undertakings. Another positive development is the pick-up in exports which rose 11.3 per cent y-o-y, driven by demand from markets like Sri Lanka, Bangladesh, the Middle East and Africa.

Moreover, OEMs also benefited from their increasing focus on expanding market coverage and new model launches, the report said.
Indian CV industry is witnessing sizable investments by OEMs towards upgrading their product portfolio, introducing new models and expanding manufacturing capacities.
These investments are likely to allow some of the new players in strengthening their positioning in the market.