Sales of domestic commercial vehicles declined 20.2 per cent in 2013-14 due to the economic slowdown and weak consumer sentiment, ICRA said in a survey.

Almost 6.33 lakh vehicles, including light, medium and heavy commercial vehicles, were sold during FY14. “The domestic commercial vehicle industry is currently going through one of its longest down cycles in recent periods. Having witnessed a decline of 2 per cent in FY13, the industry volumes have contracted by a sharp 20.2 per cent in 2013-14,” the rating agency said.

The slowing economy and weak consumer sentiment have had a trickle-down impact on demand for LCVs or passenger cars, which shrunk 17.7 per cent during the financial year compared with steady growth in the segment over the past several years.

Demand for medium and heavy commercial vehicles declined 25.2 per cent in FY14, which was lower than the industry size in FY11.

ICRA, however, believes the industry could see some revival in the second half of 2014-15. “Given the low base and some replacement demand owing to ageing existing fleets, M&HCV sales are likely to show some recovery from H2 FY15 onwards. Similarly, driven by certain structurally favourable factors, the LCV segment’s growth prospects over the medium term remain intact,” it said.

The rating agency expects a sales decrease of 6-7 per cent in FY15.

ICRA observed that despite the muted environment, original equipment manufacturers (OEMs) have sizable new model introduction plans over the near term.

Most of the OEMs are likely to introduce their relatively advanced trucking platforms across both LCVs and HCVs over the near term. As some of the new entrants expand their product portfolio...the competitive intensity is set to rise,” the report said.

The survey, however, observed that though the sector is expected to witness a revival, the profitability indicators of commercial vehicle OEMs are unlikely to follow a similar trend in view of restricted bargaining power due to competition, likely increase in expenses related to new model launches and pressure on employee costs as several OEMs have announced substantial wage hikes.

Accordingly, a relatively strong recovery in M&HCVs sales will be critical for the industry’s earning trajectory to improve, it said.

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