PL INDIA: Automobiles - CV Goods Segment: Truck Rentals decline 3-4%

PL INDIA 

Automobiles

Sector Update - CV Goods Segment: Truck Rentals decline 3-4%

After a brief pause in truck rentals movement during July 2012, the truck rentals on the trunk routes decline 3% - 4% during August 2012 with 15%-20% drop in cargo availability across the country with a 4-5 days average waiting for return load. Despite record discounts and soft auto finance schemes, M&HCV goods segment declined by 10.0% YoY in Aug’12 as truck rentals for the fifth successive month remained soft. LCV goods segment grew at 15.8% in Aug’12, with growth during April-Aug’12 at 18.0% YoY. We maintain our view that M&HCV goods segment would de-grow by 9-10% in FY13E, given the drop in freight availability and softening of truck rentals. In our view, LCV goods segment is likely to grow in the range of 16-17% in FY13E. Key findings of the IFTRT report are mentioned below:

��

n  Truck Rentals decline 3-4% in August after a pause in July’12: After a brief pause in truck rentals movement during July 2012, the truck rentals on the trunk routes decline 3% - 4% during August 2012 (2nd August – 1st September 2012) with 15%-20% all round drop in cargo availability across the country. Most of the despatches of fresh fruit and vegetables are lower by 25%-30% in to the APMCs. Along with this, except cement, steel, pharma and FMCG goods, the dispatches have seen a drop of 8%-10% from auto components/ parts, hardware items, tiles/marbles, sanitary items, furniture and fixtures, motor vehicles, steel moulded products, consumer durables, electrical goods, stationery items and general merchandise etc.  The maximum hit is the SME Sector, which provides almost 70% of the cargo from the entire manufacturing sector to the truck transport business.

n  Waiting period increases to 4-5 days for return load: The Aug’12 month (2nd August – 1st September 2012 period) has entered a crisis like situation for the truck transporters in the country in comparison to same month in last 2 years as trucks at the leading transport centres are waiting for at least 4-5 days to get the return loads to their base station because of the lower cargo availability across the segments. If the freight market does not improve in the next couple of months, there is every possibility that repossession of delinquent trucks may enter an uncertain phase similar to 2009.

n  Prices of second hand vehicle down 15-20%: While new truck sales during last 5 months have been down by double digit, a very disturbing development in the market for second hand truck sales is taking place as the truck owners and old vehicle sale-purchase brokers in the major trucking centres are unable to push their old vehicles. As a result, prices of second hand trucks have dropped by 15%-20% in last six months in comparison to previous six months. This has forced the truck owners to hold back any compulsive replacement of the old vehicle with new trucks as the freight market is not encouraging.

n  No visible signals at micro level of improvement in freight market: Given the micro economic environment and sluggishness all around, current ground level situation pointing towards stress in the system. Most of the fleet owners are pinning their hope into improvement into truck freight market during forth coming festival season, which may increase the consumer spending and general business climate. However, at micro level, there are no visible signals to suggest that truck freight market will go in for any mentionable upswing in third quarter of the current fiscal. We remain cautious on the M&HCV sales in the near-to-medium term.

n  M&HCV goods segment de-grew by 16.2% during Apr-Aug’12 period: M&HCV goods segment declined by 10.0% YoY, with tractor trailer sales declining by 9.8% for the month of August. YTD, the M&HCV Goods declined by 16.2% YoY with FY13E decline estimated at 9-10%.

n  LCV goods continues its growth trajectory @18.0% for April-Aug’12 period: Need for Hub-and-Spoke model and launch of new models has fuelled growth in the LCV goods segment which has grown at a brisk pace of 18.0% for April-Aug’12 period. Ashok Leyland’s LCV offering‘Dost’ has received a good response, thereby, helping the company to gain market share of 7.3% in this competitive segment.

n  CV goods growth slows to 3.5% YoY during Apr-Aug’12 period: The growth in industry truck sales (LCV & MHCV goods segment) slowed to only 3.5% YoY during Apr-Aug’12 period due to lower cargo availability and lower truck rentals. The 16.2% YoY decline in M&HCV goods segment was compensated by a 18.0% YoY growth in the LCV goods segment for Apr-Aug’ 12 period.