Almost 100% of all heavy truck sales are financed by NBFCs, which are currently facing a liquidity crunch as a fallout of the IL&FS crisis
Truck sales, however, are
expected to pick up momentum in the run up to the implementation of Bharat
Stage VI (BS VI) emission norms. Photo: Ramesh Pathania/Mint
|
Mumbai: India’s
liquidity crisis may dent sales of heavy trucks, said industry executives, as
factors such as financial woes at Infrastructure Leasing and Financial Services
Ltd (IL&FS) and currency volatility threaten to hit one of the
fastest-growing automobile segments. Almost 100% of heavy truck purchases are
financed and with small financiers struggling and bigger financiers raising
loan rates, fleet operators are forced to defer purchases, the executives said.
Heavy trucks comprise 36% of all commercial vehicles sold.
“Few headwinds such as the oil
price increase and liquidity tightening (credit availability as well as
interest rate) are challenges which have dampened the sentiments to some extent
since the last few weeks,” said Girish Wagh, president of the commercial
vehicle unit at Tata Motors Ltd, India’s largest heavy truck maker. He said the
situation is “dynamic at this juncture”.
“We are still in the initial
phase of liquidity tightening, it is not acute or sustained,” Wagh said in
reply to emailed queries from Mint. He said Tata Motors is
“cautiously optimistic” on the second half of this financial year through
March.
Sales of medium and heavy duty
trucks rose 47% from the year ago during April to October to 199,573 units. In
comparison, total domestic sales of buses and trucks grew 36% to 574,463 units,
showed data from the Society of Indian Automobile Manufacturers.
Tata Motors and Ashok Leyland Ltd
control over 80% of the heavy truck segment. “Some smaller financiers have
completely withdrawn in the interim and are not issuing any further delivery
orders for new truck purchases. The better-placed NBFCs (non-banking financial
companies), while having adequate cash reserves, have decided to make the most
of this liquidity crunch and have upped their IRR (internal rate of return) by
15-20 basis points to improve bottom-lines,” said Anuj Kathuria, president of
global trucks at Ashok Leyland.
“This has resulted in some
genuine postponement of purchases by customers who were considering purchases
during the quarter but have not decided to let the interest rates to cool off a
bit,” Kathuria said in an emailed response to queries. A basis point is
one-hundredth of a percentage point.
To be sure, commercial vehicle
demand has been riding on macro-economic factors such as robust manufacturing
activity, increase in private consumption and higher government spending on
mining and large infrastructure projects.
Most major fleet owners and
organized logistics service providers will also start to replace their older
vehicles in the run-up to the implementation of Bharat Stage VI emission norms
on 1 April 2020, which is expected to boost sales.
Vinod Sahay, chief executive at
the truck and bus division of Mahindra and Mahindra Ltd, said banks have not
fully withdrawn from lending to the commercial vehicle sector, but some small
NBFCs are under stress and have become stricter. “The change is not huge but
the mid and lower rung of customers find it a bit more difficult (to obtain
financing) because they are not the ones who will be funded by larger banks
owing to stricter norms,” Sahay said on 2 November.
Motilal Oswal Securities Ltd
expects domestic heavy truck volumes to grow at a compounded annual growth rate
of 7.7% over FY18-21. This would be off a high base as annual growth from FY18
to FY20 would be in the double digits, with an expected 10% decline in FY21,
the brokerage said in a 19 November note.
Going forward, analysts believe
the liquidity situation will ease, given the central bank’s stance to maintain
system liquidity at neutral.
“While RBI has been injecting
liquidity through open market operation purchases, its interventions in the
forex market to contain volatility by selling dollars have sucked out some
rupee liquidity. However, its stated stance has been to maintain system
liquidity at neutral and that is what it is trying to do”, said Ajay Manglunia,
executive vice-president, Edelweiss Financial Services Ltd.
Source:https://www.livemint.com/Auto/LliGSrIHxSPMccqG7bxQEK/India-liquidity-crisis-set-to-dent-heavy-truck-sales.html
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