Tatas expect a windfall from truck sales in Q4

Tata Motors expects sales of medium and heavy commercial vehicles (M & HCVs) to be brisk in the last quarter of this fiscal despite economic growth taking a hit after the Centre’s move to demonetise high value currency.

Along with other truck manufacturers, the company has found an unexpected ally in the form of Bharat Stage IV emission norms which kick in from April 1, 2017. With extra technology fitments, new vehicles will end up being more expensive which will prompt fleet operators to queue up for the existing affordable range instead.

Hence, while the economy might still see sluggish growth, M & HCV growth could buck the trend at least during the last quarter. “We will see an artificial boost in January-March because the price increase is going to be in the 10-12 per cent range. So, this quarter will see operators get the model year product of 2017 as well as beat BS IV norms with less expensive vehicles,” Ravindra Pisharody, Executive Director (Commercial Vehicles), Tata Motors, told Business Line .

As market leader with a share of over 55 per cent in M & HCVs, the company will gain from this frenzied buying along with Ashok Leyland, Volvo-Eicher and Daimler India Commercial Vehicles. Typically, sales of this product segment are subdued during November and December since operators prefer to wait for the new year registration vehicles.

As Pisharody said, sometimes this postponement in buying may even last a year for two, as was seen in the prolonged recession from 2012-14, before it resumes with a vengeance. “This time we believe that the delayed buying will only be for one quarter as there will be an artificial boost for M & HCVs,” he added.

This will clearly be a fallout of the paranoia in buying expensive vehicles. Customers will also take time getting used to new BS IV trucks, the electronic engine and so on which will create a sort of risk-averse attitude within the operator fraternity. The not-so-good news is that this sluggish buying pattern will continue into the first half of 2017-18 too which means manufacturers are already bracing themselves for a hard drive. Pisharody is hopeful that things will look up in October-March 2018 when the expected benefits of demonetisation will hopefully start playing out in the economy. This would leave the Centre with more money to spend on infrastructure while banks will also lower interest rates to incentivise investments.

If things do go according to the planned script, M & HCVs will have a good run for the next two years, especially during 2019-20 when there will be brisk buying thanks to BS VI norms which will come into effect from April 1, 2020. This is one of the biggest challenges for policymakers as the new emission norms will completely bypass BS V while moving from (BS) IV to VI. Not only will vehicles across the board become very expensive but there are fears of cleaner fuel not being available across every nook and corner of India.

It is keeping this projected roller coaster ride in mind that Tata Motors is constantly working on building its international presence in trucks. “Our business is still too heavily dependent on India which, in turn, is becoming acutely cyclical. It is not a very predictable trait and we need to deleverage a bit,” said Pisharody.

This is where exports become critical for the company, be it in the form of complete vehicles or kits that can be assembled by local distributors in other countries. Yet, the bigger challenge is that there is tremendous global volatility all around where surprises suddenly crop up as in the case of Sri Lanka which hiked import duties on vehicles, a move that hit Indian exporters. Likewise, depressed prices of oil have crippled Latin America, Africa and Russia. Tata Motors will have its work cut out in this unpredictable global arena.

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