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Indian CV Industry Victim of Economic Slowdown & Overcapacity - ICRA

Auto News - Published on Wed, 18 Sep 2019

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Rating agency ICRA said that Indian domestic commercial vehicle industry has been facing a slowdown in demand and declining sales over the past two three quarters primarily due to the economic slowdown and surplus capacity despite efficiency gains. While implementation of E-way bill has streamlined operations to some extent for the transporter community, with savings in time and paperwork reduction due to the digitization of processes and turned out to be positive for the truck operator, the resultant efficiency gain has contributed to an increase in capacity for the existing CV parc, leading to lower demand for new trucks.

ICRA further mentioned that the sharp slowdown in CV demand over the past 2-3 quarters has also been due to revision in axle load norms, tight liquidity situation within the financing ecosystem as well as overall economic slowdown resulting in lower freight availability.

The upward revision in axle load norms for Trucks (above 16T GVW), with effect from July 2018, resulted in almost 15 to 20% increase in load-carrying capacity of fleet operators and exerted pressure on freight rates. Thus, despite the rise in operating costs for fleet operators on the back of higher fuel cost, EMIs and other overheads, the freight rates had remained flat till September 2018 and started declining from November 2018 onwards owing to low freight availability and surplus capacity, in addition to the softening of fuel prices.

Mr Shamsher Dewan Vice President & Sector Head Corporate Ratings, ICRA said that “Given the subdued freight rates, low freight availability and increased operating costs, the viability of fleet operators have come under pressure over recent quarters, which has also contributed to lower demand for CVs.”

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Posted By : Mohan Sharma on Wed, 18 Sep 2019
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