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Turnaround in the commercial vehicle sales will be slow: India Ratings

LiveMint logoLiveMint 12-06-2014 Shally Seth Mohile

Mumbai: A turnaround in the commercial vehicle (CV) sector will be slow and a recovery in terms of fleet utilization is unlikely before the first quarter of fiscal 2016, according to India Ratings and Research Pvt. Ltd, a Fitch group firm.

The ratio of fleet capacity growth (as measured by medium and heavy commercial vehicles sales) to industrial production growth climbed to 1.8 times in fiscal 2014 from 1.3 times in fiscal 2009, according to the agency’s analysis.

This change was driven by a slowdown in the industrial production and insufficient contraction in CV sales. “This has resulted in fleet under-utilization and affected CV operators’ ability to negotiate higher freight rates in spite of rising fuel costs, impacting both revenue and margin of operators,” said Arvind Rana, asssociate director of structured finance at India Ratings.

The demand-supply mismatch would not return to the fiscal 2009 level before first quarter of 2016 even if the Index of Industrial Production grows 6% and medium and heavy commercial vehicles sales remain flat.

“The existing surplus capacity needs to be absorbed before the sector can witness any significant CV sales without hurting asset quality,” said Jatin Nanaware, director of structured finance at India Ratings, adding that higher CV sales growth on the expectation of an economic rebound could slow the recovery.

However, the agency believes that its rated portfolio’s performance is unlikely to worsen. This is considering the portfolio has started showing signs of stability.

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