CV Sales Slowing Down :- Is it a Start of another 2008 Turmoil

One of the research firm met with managements of couple of large CV financiers to understand the developments in the M&HCV space. Both these companies rank amongst the top 5 commercial vehicle (CV) financiers. Key highlights are:

M&HCV volume to remain weak: The outlook for M&HCV sales continues to remain stressed by the slowing investment cycle, weak industrial growth and high interest rates. In an optimistic case, the managements expect heavy truck volumes to be flat, with a de-growth of 10% being a more likely scenario. While H1 will likely be even weaker; the managements hope for an improvement in the second half on normal monsoons and a possible pickup in the investment cycle.

Signs of pressure visible. Our discussion with the financiers highlighted some clear stress signals on the industry:

·         Delayed payment to truck operators. The company’s are yet to witness any significant increase in nonperforming assets; however, there are some signs of stress on the truck operators. For instance, there have been cases of large corporates deferring payments to fleet owners, which in turn can lead to delay in payments of EMI’s. In case, there are any stronger signs of defaults, one might expect these financiers to tighten lending norms.

·         Exit of first time buyers from the market. There are few first time buyers (FTBs) in the market due to a deterioration in the incremental freight availability. FTBs are typically funded by smaller NBFCs. Consequently, with the exit of FTBs, there has been a consolidation the CV financing market, where the top 5 players have gained market share.

·         Dealer inventory rising. The company’s indicated that retail volumes (~30%) had declined more than the wholesale unit sales (16%) in the first quarter. This is a strong indication that dealer inventories may have shown an uptick.

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