commercial vehicle industry

8/3/2019 Commercial Vehicle Industry

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Commercial Vehicle IndustryThe commercial vehicle (CV) Industry in India, as is the trend internationally, is cyclical, with periods of volumegrowth leading to investments in fleet capacity and subsequently to periods of correction. In spite of theinherent cyclical nature, the long-term growth prospects for the industry remain closely linked to thedevelopment of road infrastructure, growth in gross domestic product (GDP) and industrial production. TheIndian CV industry is currently going through demand correction following one of the longest up-cycles in its

history. The Industry which grew at a rate of above 25% over 2001-07 has grown by just 5% in FY08. The longup-cycle was driven by strong economic growth and investments in road infrastructure, besides favourableregulatory changes and a benign financing environment. The industry, on its part, has used its period of growthand the resulting financial surplus to invest in product development and improvement in operating efficiencies.These efforts have resulted in industry extending its presence into newer geographies and exports haveincreased at a CAGR of almost 40% over the last five years. Going forward this could help in mitigating theeffect of down cycle to an extent.

Industry growthOver the last five years light commercial vehicles (LCV) and medium/ heavy commercial vehicle (M/HCV)segment have grown at a CAGR of 27% and 17% respectively. Although growth of these segments has shownsimilar trend, volume growth in the M/HCV segment has been more volatile. The demand for M/HCV goodscarrier segment mainly depends on higher capacity addition at the fleet operator level and also prone to severedemand shocks. The LCV segment, though cyclical, usually exhibits steadier demand patterns on account of

wide usage range.

0

100000

200000

300000

400000

500000

600000

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

COMMERCIAL VEHICLES PRODUCTION TREND

Series1



Structure of Indian CV segmentThe CV industry in India is split between the LCV and M/HCV segments, with the classification being based ongross vehicle weight (GVW). According to Industry norms, vehicles with GVW less than 7.5 tonnes areclassified as LCVs while the ones heavier than these are termed M/HCVs. In terms of usage, CVs may becategorized as goods carriers and passenger carriers. Among the passenger carriers in the less than 7.5 tonneGVW segment, those with sitting capacity up to 13 are categorized as utility vehicles (UVs, and not part ofLCVs) while those with capacity over 13 passengers are grouped as LCVs. According to Crisil statistics, theoverall CV industry is split between the LCV and M/HCV segments roughly in the ratio of 45:55.The Indian four-

0

50000

100000

150000

200000

250000

300000

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

M&HCV SALES TREND

0

50000

100000

150000

200000

250000

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

LCV SALES TREND



wheeler industry is duopolistic in nature with Mahindra and Mahindra (M&M) and Tata Motors holding a majorshare in LCV segment (90.8%) and Ashok Leyland (ALL) and Tata Motors holding a major share in M&HCVsegment (88.6%).

0

10

20

30

40

50

60

70

8090

100

TATA

MOTORS

ASHOK

LEYLAND

EICHER SWARAJ

MAZDA

TOTAL

M&HCV PASSENGER CARRIER MARKET SHARE

FY 2007

FY2008



0

10

20

30

40

50

60

70

80

90

100

TATA

MOTORS

ASHOK

LEYLAND

EICHER SWARAJ

MAZDA

TOTAL

M&HCV GOODS CARRIER MARKET SHARE

FY 2007

FY2008



Market segmentation – Domestic CV IndustryThe CV industry can be divided into two broad categories —

goods vehicles (trucks)

passenger vehicles (buses).These can be further divided into

light commercial vehicles(LCVs) (LCVs <0-7.5T )

heavy commercial vehicles (HCVs) (HCVs>7.5T).Historically, the goods segment accounted for more than 85% of the CV industry’s volumes. Within the goods segment, there has been a shift towards higher tonnage vehiclesin MHCV volumes and lower tonnage vehicles in LCV volumes.MHCV had a market share of 51% in FY06, it has dropped to 41% in FY11.

01020304050607080

90100

LCV PASSENGER CARRIER

MARKET SHARE

2007

2008



This loss hasbeen compensated by the LCV segment, which has gained 12-13% market share overFY06-

BREAKUP OF SALES OF CV'S IN 2010 &20112010 2011

MHCV 202 275

LCV 253 319

MHCV PASSENGER 43 48

LCV PASSENGER 34 37

51% fy2006

41% fy 2011

0 10 20 30 40 50 60

1

2

MARKET SHARE

MARKET SHARE MHCV IN 2011 AND

2006



TOTAL 532 678

0

500

1000

N U M B E R O F U N I T S I N L A C S

TYPE OF VEHICLES

BREAKUP OF SALES OF CV'S IN 2010

&2011



1880

7169

863

10130

3525

13022

10976

3725

7822

3720

4653

18131

1291

9096

11528

11797

10802

12542

3639

18032080

555

4507

1803

4438

5963

2773

4229

2843 3120

9776

971

2843

7003

3536

5200

3952

1941



65

4630

261

5152

1369

7043

4695

587

2934

783 1239

6391

261

5347

4043

7238

4826

6978

1369



Opportunities: 1) Global markets getting stagnant, while China, India and Thiland driving double digit growth2) Indian GDP targeted at 8-9.5% growth in coming years leading to the need for massive

infrastructure movement

3) India does not have a clearly defined scrap policy for old vehicles. So far the small operators

have been pushing the old vehicles on road to maintain their bottom-line. However this fleetneeds to be replaced with better technology vehicles with better load capacity and less

maintenance4) India Retail, logistic, distribution sectors getting organized creating opportunity for CV

market to split in to further more segments5) Easy financial options. Most of the vehicle makers now have a strategic relationship with

bankers and also their own financial units for easy credit.

6) More specialized vehicles required for perishable, oil, mining sectors

Challenges

1) Excise, interest rate, fuel price, raw material price hikes

2) Trained drivers for sophisticated vehicles and planned maintenance3) Increased competition and expansion in capacity would pressure on margins leading to just a

volume driven model

The commercial vehicle market is purely an economic pay and has moved cyclically, however

India now established itself as a global manufacturing hub for sourcing and now proving a high

growth market also makes it surely a long term story for CV makers.

commercial vehicle industry

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