CV sales to grow 7-10% in FY24, operating margin to improve further: ICRA

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Sales of domestic commercial vehicles are expected to rise 7-10 percent in the financial year 2024 from the previous year, rating agency ICRA said on February 14.

The growth will be visible across all three sub-segments—medium and heavy commercial vehicles (MHCVs), light commercial vehicles (LCVs) and buses, it said.

The rating agency, which has maintained a “stable” outlook for the industry, forecasts that aggregate operating profit margin of CV original equipment makers (OEMs) will touch 6-7 percent in FY2023E and “improve further in the next fiscal”.

The CV sales growth will be driven by government spending in infrastructure, replacement demand, back-to-school and office trend, and e-commerce expansion, ICRA said. The YoY growth though would be moderated by a high-base of 24-26 percent volume growth in FY23.

“With the growth trends in the CV sector expected to continue over the near term, we also expect an improvement in the financial performance of the CV OEMs, led by the benefit of operating leverage and the easing commodity prices,” said Sruthi Thomas, Assistant Vice President and Sector Head, Corporate Ratings, ICRA.

“In terms of the investment outlay, while CV OEMs have limited plans for capacity expansion over the near term, investments in new product development, electric and other alternative fuel vehicles, and tightening emission norms, etc. would continue.”

Pre-pandemic numbers

The heavy truck segment particularly will benefit from “the continued thrust of the government on infrastructure development, as evidenced in the increased capex outlay of Rs 10 trillion in the Union Budget for 2023-24”, Thomas said.

Quarterly volumes for the MHCV segment have surpassed pre-Covid levels. The number of units sold in Q3FY23 was 77,291, a 28 percent YoY growth, making the December quarter the ninth straight one to report a double-digit YoY growth.

The segment’s volume growth is expected to moderate but stay at 8-10percent in FY2024E, after increasing by 25-30percent in FY2023E.

Last-mile transportation demand from the e-commerce segment is seen as a growth driver for the LCV segment. The growth in this segment is expected to slow down to 4-6 percent from 15-17 percent in FY23E.

The passenger carrier segment (buses) has been seeing an improvement in sales numbers since the last quarter of FY21, with the reopening of offices and schools, according to ICRA.

In all three quarters of FY23, the segment has seen sales of 16,000-19,000 units, which is equivalent to the pre-Covid levels. ICRA forecasts a 120-130 percent volume growth in FY23.