Higher utilisation, better product mix to lift operating margin and credit metrics
The intense second wave of Covid-19 afflictions and attendant lockdowns will limit growth in the domestic commercial vehicle (CV) sales volume to 23-28% this fiscal, compared with 32-37% expected prior to its onset. Volume growth had hard-braked to a decadal low last fiscal.
Credit metrics of CV makers are expected to improve as margins expand on better capacity utilisation and product mix. The CV market saw two consecutive fiscals of steep volume decline (29% and 21% in 2020 and 2021, respectively), following multiple headwinds such as revised axle norms, BS-VI transition and the pandemic.
While a sharp recovery from the lows was on the cards this fiscal, it will be constrained by a weak first quarter because of the second wave of the pandemic. In April, freight rates fell ~20% on-month even as diesel prices remained elevated, hurting fleet operators. With lockdowns becoming widespread in May, freight movement, and consequently the profitability of fleet operators, would remain under pressure, weighing on demand at least in the first quarter.
As lockdown eases from the second quarter, freight demand and rates could normalise, aiding demand for CVs.