Medium & heavy commercial vehicles

The goods carrier segment accounted for around 88% of the domestic sales in the first
half of the current financial year, with the passenger carriers (buses) accounting for the
balance. The sales of trucks were flat in the first half of FY2006 while that of buses
declined by 8% during the same period.

Growth: Since the mid-1990s, the M&HCV industry witnessed sharp swings in sales.
M&HCV sales in the domestic market marked a growth of 27% during FY 1994-97 on
account of the increased focus on infrastructure development, easy availability of credit,
and a steady growth in GDP. The buoyancy in the economy with GDP growth at around
6%, industrial growth at 10%, and low inflation levels propelled this growth in M&HCV
sales. The subsequent economic slowdown, however, took a heavy toll of domestic
M&HCV sales, which declined by 39% in FY1998 and by 10% in FY1999. In FY2000,
the domestic sales of M&HCV segment recovered and posted a growth rate of 34%.
During FY2001, M&HCV sales declined by 23% over FY2000. The trend somewhat
reversed in FY2002 with volumes increasing by 10% during the year. The upswing in
M&HCV sales continued till FY2005 as evident from the following figure. The M&HCV
sales increased at a CAGR of 30.2% during FY2002-2005.

M&HCV sales in India at 86,474 units in H1FY2006 were at the same level as previous
year. During Q1FY2006, the sales volumes was affected on account of changes
introduced in implementation schedule of emission norms for select states and supply
constraints regarding availability of certain components for a few players. The floods in
Maharashtra and Gujarat may also have played a part in the skid in sales. However,
domestic volumes revived in Q2FY2006.

Key players: Tata Motors Ltd and Ashok Leyland Ltd dominate the M&HCV market in
India. However, in the recent years other CV manufacturers such as Eicher Motors Ltd
(EML) and Swaraj Mazda Ltd (Swaraj Mazda) have forayed in heavy trucks market and
cornered some market share. Multinational companies like Volvo and Tatra Udyog offer
products at the higher end of the M&HCV market and together account for less than 1%
market share in the M&HCV market. During FY2002-2005, Tata Motors was able to
improve its market share marginally but during first half of FY2006, its market share has
declined on account of a steep decline in the sales of passenger carriers as well as decline
in sales of goods carriers in the domestic market. On the other hand, a strong growth in
sales of passenger carriers as well as goods carriers allowed Ashok Leyland to increase
its market share. A host of players are planning to launch new vehicles as well as variants
in a bid to increase their market share. Further, some new players such DaimlerChrysler
and MAN (in alliance with Force Motors) are expected to enter the Indian M&HCV
market. The former has already announced that it will launch its Actros range of trucks in
the next financial year.

Trends : There is a growing preference for higher capacity trucks in this segment. Within
the goods carrier space, the share of the multi-axle trucks (MAVs) and tractor trailers has
increased overtime.
While the standard truck dominated the heavy goods carrier sales till FY2004, the
segment share of trucks with GVW greater than 16.2 tonnes increased from 40.6% in FY
2003 to 43.4% in FY2004 and then to 44.9% in FY2005. MAVs offer around 15-20%
savings in cost per tonne km basis over standard trucks. The cost advantage derives
primarily from better fuel economy per unit of load, which is offset by lesser number of
trips and higher capital costs. In addition, one 44-tonne heavy truck, instead of three 15-
tonne trucks, means lower traffic congestion on the highways. Further, with financiers
offering lower margin requirements in certain cases, the higher costs of these vehicles
that was a deterrent earlier no longer remains so. The increasing demand for 12-16.2
tonnes trucks till FY2005 has been on the strength of demand from smaller fleet operators
(who may not be able to get bigger loads on a sustained basis) and the relatively lower
capital costs for the standards as against MAVs.

The bus segment witnessed a steady growth in sales volumes during FY2002-FY2004
and a modest growth in FY2005.

Historically, the bus segment depended heavily on the state road transport corporations
(SRTCs) which accounted for a significant proportion of the demand, and with the
SRTCs accumulating losses, bus demand suffered. Growth in demand for passenger
transport and an ageing fleet could influence the demand from SRTCs. With customer
preferences shifting towards semi-luxury and luxury buses for inter-city and intra-city
travel, private sector operators are buying these kind of buses to cater to the changing
demand. Moreover, CV manufacturers are also taking initiatives to offer fully built
vehicles. Thus, the role of the private sector may be crucial for revival of demand in the
bus segment.

Light commercial vehicles

During the period FY1994-97, when the economy was growing at a healthy rate, LCV
sales had reported a modest compounded annual growth rate. In FY1998 and FY1999,
domestic sales of LCVs reported a 28% and 10% decline in sales volumes respectively.
In FY2000, LCV sales in India grew by 9% on the strength of the economic recovery
followed by a year of flat sales. The LCV sales in FY2002 reported marginal growth.
This was followed by a strong growth in FY2003. Even FY2004 witnessed a sharp
growth of 31.5% in LCV domestic sales volumes which continued in FY2005 (21%
growth in domestic CV sales).

Market share: The LCV industry in India has seven players with Tata Motors being the
largest player, commanding a market share of 50.7% in H1FY2006. The other players are
ALL, M&M, Eicher Motors, Force Motors, Swaraj Mazda and Hindustan Motors Ltd.
Success of Tata Motors' LCVs 207 and 207DI allowed the company increase its market
share during FY2004-2005.

Trends: Within the LCV goods carriers segment, rising preference for lower tonnage
vehicles given easier availability of smaller payloads, thus better operating economics, is
pulling the market away from the traditional 3.5-5 tonnes segment to the less than 3.5
tonnes segment. Till FY2003, 5 to 7.5-tonne category was the largest segment in the LCV
market (accounting for 58% of all goods carrier sales). However, the market share of this
segment has been declining since FY2002 and accounted for 44% of LCV market in
FY2005. During H1FY2006, less than 3.5 tonnes segment marked a growth of 42.5%
over the corresponding previous while the sales of Tata Motors more than doubled on the
strength of good volumes for pick ups as well as well acceptance of its sub-1 tonne
carrier Ace.

The increasing popularity of the lower tonnage LCVs can be attributed to the increasing
distribution of goods inside Indian towns and villages that need small vehicles because of
disaggregated nature of freight generation and narrow roads. The increasing popularity of
door-to-door service has contributed to the growth of LCVs in the recent past. As these
vehicles have relatively lower acquisition costs, the fleet operators may prefer them to
carry small cargo. Thus, LCV market is also likely to gain as the transportation industry
shifts towards hub and spoke model.

Road infrastructure the key to increasing

volumes

Posted: Monday, Nov 07, 2005 at 0000 hrs IST

Updated: Monday, Nov 07, 2005 at 0000 hrs IST