Thursday, March 28, 2013

Towards More Globalised Highways

The Booming Indian CV market has been Seeing a slew of MNCs Lining up to be Among The Numbers. Can they do an Encore of The Script that played out in The Passenger Vehicle Segment?

Just months after the world saw the banking sector in developed countries in a hell bound state, slowdown blues made their way into the Indian market. However, much before the cautionary signals were made public, the commercial vehicle (CV) segment was already feeling the heat and the months ahead took the sector deeper into the woods. This gave credence to a well accepted viewpoint in the industry; that commercial vehicle sales are a barometer of economic activity.

The industry showed a decline in sales by 21.69% yoy for FY 2008-09 with the so-called highly profitable M&HCV segment dipping by 37.01% to record sales of 1.48 lakh units as compared to the 2.35 lakh units sold in FY 2007-08. While Ashok Leyland managed to sell only 47,632 vehicles in the same period with a decline of 37.34%, market leader Tata Motors also felt the heat and its sales declined by 22% to 2,33,843 units.

However, to the respite of CV makers and supporters of the ‘barometer’ analogy, the market took little time in taking a U-turn, as the economy stabilised and started moving back on the growth charts; well in time before the economy also made a strong rebound.

“There is a lot of scope in the CV segment and the projected healthy GDP growth rates also suggest the same,” says Rakesh Kalra, CEO, Mahindra Navistar. The recent budget highlighted the strong investment push needed to develop infrastructure in India and this would boost the demand for M&HCVs (16T & above) & LCVs (less than 3.5T). Domestic sales figures show a yoy growth of 34.18% for M&HCVs and 24.08% for LCVs for the period of April 2010-February 2011 as per SIAM. Three wheelers displayed a rise of 19.96% yoy for the same period. By all counts, such numbers do not hurt! In addition, taxes have not been increased on CVs in this year’s budget. It is not surprising, therefore, that a number of global players have made their entry recently, or are looking for a foothold in this space. Over time, MNCs have virtually dominated the passenger vehicles segment in India. Will they be able to do an encore in the CV segment?

When you look at the incumbents, it looks to be quite a daunting challenge, for the market is dominated by three large players. Tata Motors still holds the pole position with sales of 3,48,544 units and a growth of 22.36% during the April 2010-February 2011 period, followed by M&M that dispatched 92,768 vehicles towards Indian roads with a growth of 23.13%. So far, Tata Motors, M&M and Ashok Leyland account for more than 80% of the total market in India. When it comes to MNCs, the leading company is SML Isuzu (Swaraj Mazda’s alliance with Japanese player Isuzu) posted the best performance with sales of 10,444 followed by Piaggio with sales of 8,444 units. The Volvo-Eicher JV came next with 932 units, while Volvo Buses posted sales of 488 units.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

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