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Rediff.com  » Business » Commercial vehicle: Industry seeks more fund

Commercial vehicle: Industry seeks more fund

June 29, 2009 19:01 IST

Accelerated depreciation expires by September 2009 while funds under JNNURM for urban transport is available till June 2009; industry seeks these benefits for extended time period.

Among the auto segments, the Commercial vehicle industry was the worst hit by the sudden recession witnessed in calendar year 2008 characterised by plant shutdowns and production cuts. However the various measures enforced by the government such as cut of 4 per cent to 6 per cent in the excise duty amounting to 8 per cent on both buses and trucks, 50 per cent accelerated depreciation on new trucks, bus purchase under the JNNURM scheme, cut in fuel prices etc boosted the CV sales sequentially from low of 20282 vehicles in Dec '08 to 33072 vehicles in May 2009.

Unfortunately, the industry still lurks in the negative growth terrain on y-o-y basis largely owing to medium & heavy commercial vehicle sales (M&HCV sales). The CV sales in period Apr to May 2009 declined by 16% y-o-y to 64585 vehicles against 77016 vehicles in corresponding pervious period.

The M&HCV sales slumped by 32 per cent y-o-y from 296675 vehicles in FY08 to 200406 vehicles in FY09 driven by the slow down in the economy. The sales of high growth special vehicle segment of tractor trailers, tipper and Multi Axle Vehicle sales shrunk on account of cyclical uncertainties, lack of finance for such vehicles by NBFC/ FIs preferring finance for general purpose vehicles (haulage) over specialty vehicles. Nevertheless, the M&HCV industry has managed to pull out itself consistently from 68 per cent y-o-y degrowth in December 2008 to 35 per cent downfall in May 2009 on account of the various measures extended by the government. However, its total sales continued to decline y-o-y with 38 per cent y-o-y reduction to 25134 vehicles in Apr-May 2009 period compared to 40731 vehicles in corresponding previous period.

In contrast, Light Commercial vehicle sales have bounced back both sequentially and y-o-y basis. Though it declined by 10 per cent y-o-y from 252813 vehicles in FY08 to 226389 vehicles in FY09, it has picked itself from the beginning of FY 2010 with 9 per cent y-o-y growth to 39451 vehicles in Apr- May 2009 period.

Industry expectations

SIAM has not brought out any pre budget memorandum for auto sector.

Analysts/market expectations

Currently, accelerated 50% depreciation is available for commercial vehicle put to use on or before 30th September 2009.  The industry seeks extension of this 50% accelerated depreciation for the whole of financial year 2009-10.

Currently, funds for purchase of buses for city transport is made available under JNNURM scheme until 30th June 2009. Accordingly, the government has so far placed order for around 8000 buses out of the over 14,000 buses sanctioned under JNNURM scheme. If the government placed order for the remaining 6000 buses in June 2009, it would take a while for manufacture of the buses, with deliveries extending beyond the 30th June 2009 deadline. So, the industry seeks funds under JNNURM available for extended period of time.

Commercial vehicles: Sales at a glance

Details

FY2008-09

FY 2007-08

Var %

M&HCV Total Sales

200406

296675

-32.45

LCV Total Sales

226389

252813

-10.45

Total Commercial Vehicles

426795

549488

-22.33

Source: SIAM

Details

Apr-May 2009

Apr- May 2008

Var %

M&HCV Total Sales

25134

40731

-38.29

LCV Total Sales

39451

36285

8.73

Total Commercial Vehicles

64585

77016

-16.14

Source: SIAM

Reduction in the interest rates by banks and easy availability of credit to boost sales. Despite the RBI cutting the key policy rates such as CRR by 400 bps to 5% and Repo rate by 425 bps to 4.75% since mid Oct 2008 till date, the banks have not adequately cut the interest rates on advances.  Also, considering the deterioration in asset quality, banks are going slow on advances in general and auto loans in particular.  But making credit available at affordable rates can act as a catalyst to growth in demand for auto sector in general, and CV segment in particular.

Companies to watch

Ashok Leyland, Tata Motors and Mahindra & Mahindra

Outlook

Among the auto industries, the CV industry is yet to revive as it is still thriving in the negative growth terrain. The extension of accelerated depreciation on new trucks as well as bus purchases under JNNURM scheme would enable the CV industry to continue to improve temporarily. However, what can drive y-o-y growth in CV industry is economy growth as CV industry moves in line with economy. Thus investments in infrastructure, roads and the economy in general would be the natural booster and strong platform for the revival of CV industry. Thus the outlook on the CV industry from the Union budget is neutral.

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