CV sales growth lower than expected in last quarter of FY17
While the change to the new Bharat Stage IV emission norms by April 1 was expected to push pre-buying in Q4, the recovery in CV sales has been lower than expected.
The commercial vehicle (CV) sales in India were expected to receive a huge growth in sales in the last quarter of the year due to the implementation of the Bharat Stage (BS) IV emission norms. However, growth in sales have been marginal in comparison to expectations. The India CV industry is expected to end the fiscal 2017 with a marginal growth of 5-6% in comparison to 11.5% witnessed in the prior year, said an ICRA Research report.
A number of factors have subdued the optimism among fleet owners such as waning replacement-led demand, weak cargo availability from industrial sectors and uncertainty related to effective taxation on CV industry under the Goods and Service Tax (GST) regime were the key factors that contributed to slowdown in CV sales.
The main hit inflicted on the CV sales was when the government decided to demonetise the high currency notes and as a result it put the brakes on the operations of road logistics sector which depends heavily on cash transactions.
While the change to the new Bharat Stage IV emission norms by April 1 was expected to push pre-buying in Q4, the recovery in CV sales has been lower than expected. The report says that subdued economic activity along impending GST implementation in the near-term has prompted fleet operators to defer fleet expansion or renewal plans.
“With transition to new emission norms (ie BS-IV) from April 2017, the industry was expected to witness pre-buying in the last quarter as vehicles complying with new emission norms can be 6-10% more expensive because of technology upgradation. Although the industry growth recovered in January-February 2017 but the extent of recovery has been below expectations,” said the report.
In addition, there has also been uncertainty related to ability of original equipment manufacturers (OEMs) to sell BS-III compliant vehicles post April 2017. As a result of these factors, industry-wide inventory levels have inched up as OEMs had scaled up production in Q4 FY 2017 while sales have been below expectations. As per ICRA, the total inventory of CV OEMs is estimated to have been approximately 74,000 units, which is around 1.3 times the average monthly sales.
It further said that clarity on the sale of BS III vehicles will help automobile manufacturers to align their production schedule in the remaining days and sell their existing inventory. Further, companies will also be able to route unsold inventory of BS-III vehicles to near-by export markets where emission norms have not progressed to Euro IV or equivalent.