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Tata Motors is expecting an early revival of demand for big trucks to pull it out of its worst performance in two decades. The company reported a Rs 482 core loss at the earnings before interest, taxes, depreciation, and amortization (EBITDA) level in 2013-14 because demand for trucks dropped as economic growth slowed to 4.74 per cent from 8.91 per cent three years ago. Analysts reckon Tata Motors earns 80-85 per cent of its revenue from selling trucks, and 50 per cent from medium and big trucks.
"Typically it is the large vehicles that get hit in a recession and they are the last ones to make a comeback," said R Ramakrishnan, senior vice-president of the commercial vehicles unit at Tata Motors. "This time, we might see something different as truck replacements were pushed back by almost three years unlike earlier the recession when they were delayed by 1.5-2 years."
India's largest truck maker reported Rs 34,288 crore net revenue in 2013-14 by selling, alongside cars, 370,000 trucks in the year, down from 530,000 a year ago. "Over the past a few months there has a been slight improvement in truck utilisation. In some segments it has even reached 70 per cent from 60 per cent three-four months ago," Ramakrishnan said. Analysts estimate at 75 per cent utilisation, the industry starts to add capacity.
The Indian Foundation of Transport Research and Training said the number of trucks with nation-wide permits had fallen to 1.1 million from 1.2 million three years ago. Such permits are granted for 12 years to double-axle trucks and 15 years to multi-axle ones. As industrial production slowed truck utilisation suffered, squeezing haulage rates and lengthening fleet replacements.
"In the last six to seven months truck rentals improved 12-14 per cent on wheat procurement and an increased arrival of summer fruits and vegetables," said S P Singh, senior fellow at the Indian Foundation of Transport Research and Training. "With a revival in industrial production, we expect utilisation to improve further," he added. Industrial production grew 4.7 per cent in May, up from 3.4 in April. Prior to this, it declined by 0.5 and 2 per cent in March and February, respectively.
"We see replacement demand starting for trucks used in mining and infrastructure," said Umesh Ravankar, managing director and chief executive officer at Shriram Transport Finance Company. "But we expect a real recovery only when economic growth crosses six per cent," he added.
