The commercial vehicle (trucks) sector is staring at a weak outlook over the near term as multiple factors pose headwinds for demand in the next two quarters.

Tight liquidity conditions have led to a cautious lending approach, particularly in the heavy truck segment. Significant sales growth in the first half of this fiscal and revision of axle load norms has created excess capacity. The rise in operating costs and flat truck rental rates have put pressure on small fleet operators.

Also, the General elections due during the second quarter of this calendar year may cause some temporary impact on sales.

After recording 54 per cent growth in sales at 1.71 lakh units during the first half of this fiscal, the medium and heavy truck segment slipped into decline phase from November on account of the twin impact – announcement of revised axle load norms,which allow 25-30 per cent more load on trucks and lack of credit facilities from NBFCs that face liquidity issues.

Consequently, the medium and heavy truck segments recorded an eight per cent fall in volumes at about 80,000 units in the December 2018 quarter. In January this year, the truck volumes were flat at 31,000 units.

Hence, the CV industry expects this quarter and the first quarter of the next fiscal to be flat due to a high base from last year and the prevailing weak sentiments in the market.

“We see the pressures of Q3 continuing in this quarter as well. Since General Elections will be held during the June quarter, it normally leads to a slowdown in demand for trucks as customers will postpone their purchases. So we expect the first half of 2019 would be slower than H1 of 2018. However, H2 is expected to be better with the expectation pre-buying ahead of BS VI norms,” said Satyakam Arya, Managing Director & CEO of Daimler India Commercial Vehicles.

Gopal Mahadevan, Chief Financial Officer & President – Customer Solutions Business, Ashok Leyland also indicated that truck demand in this quarter and Q1 of next fiscal would see challenges.

However, the industry will also be facing implementation of BS-VI emission norms from April 2020 onwards. Since vehicle technologies are likely to witness significant upgrade due to the new norms, CV prices are expected to increase by at least 10-12 per cent, it will possibly lead to pre-buying that could boost CV sales in the next fiscal.

“There has been significant pre-buying trends observed in the quarter immediately preceding implementation of a new emission norm, which can be expected in Q4 FY2020 as well,” according to Subrata Ray, Senior Group Vice-President, ICRA.

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