Representative image.
Credit: iStock Photo
Bengaluru: The domestic market for commercial vehicles (CV) is expected to dip by 4-7% in terms of wholesale volumes in the current fiscal, according to the credit rating agency ICRA.
It attributed this to the calculation being made on a high base(to FY 24 volume 9.67 lakh) as well as the prospect of muted economic activity in the first few months of the new government coming into place.
Kinjal Shah, senior vice president and co-Group head, ICRA Ratings, explained, "The domestic CV volume growth momentum slowed down in FY24 and is expected to dip in FY25 amid the transient moderation in economic activity in some sectors in the backdrop of the general elections."
This shrinkage will be led by the light commercial vehicles, the market for which is expected to decline by 5-8%, while the wholesale volume of medium and heavy commercial vehicles will contract by 4-7% during the year. However, the scrapping of older government vehicles is expected to drive replacement demand for the bus segment from state road transport undertakings (SRTUs) in FY 25, supporting a growth of 2-5%.
Pressure on OEMs’ margins
The agency also sees the operating profit margin of original equipment manufacturers (OEMs) of commercial vehicles coming under pressure, slipping by 8.5-9.5% in the current financial year, on the back of lower volumes and higher competitive pricing.
This comes after the operating profit margins improved by 250-300 basis points in FY24, when the industry’s volumes were at a five-year high, there was lower discounting by OEMs, while benign commodity prices also aided the margin expansion.
In the agency’s estimation, the industry’s capex and investments is likely to go up to Rs 5,900 crore in the ongoing fiscal, as compared to Rs 3,700 crore pitched in the previous financial year. The investments will go into product development, technology upgradation and maintenance, it ICRA elaborated.