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Automobiles: Commercial vehicle, goods segment - Truck Rentals decline

Prabhudas Lilladher | 15 May, 2012  | Follow Author | Add to my Favourites 
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The impact of 5% excise duty increase in the latest Union Budget and 3%-5% drop in truck freight rates in April’12 turned out to be doubly whammy for truck sales as volumes plunge by 17.9% for M&HCV goods segment in April’12 as against the same period last year, while multi-axle truck down by 27.7% and tractor trailer sales slide by 22.9%. LCV goods segment grew at 16.0% for April’12. prabhudas Lilladher's earlier assessment of a flattish growth in the M&HCV goods segment in FY13E seems to be at risk given the sudden drop in freight availability and softening of Truck Rentals. In their view, LCV Goods segment is likely to grow in 14-15% range in FY13E. Key findings of the IFTRT report are mentioned below:

- Truck Rentals fall 3‐5% in April’12: After 10 quarters of robust increase in open market full truck load freight rates since October 2009, the truck rentals during April 2012 (April 03 – May 02, 2012 period) had a significant fall of 3%-5% due to 20%-25% due to low arrival of summer fruits and vegetables, around 15% less load offerings due to dislocation in wheat procurement resulting from frequent heavy hailstorms in States of Punjab, Haryana and Western Uttar Pradesh and unseasoned rain in some parts of Madhya Pradesh. The situation of lower cargo offerings from large number of trucking centres in several States was due to lack of support in various manufacturing areas and this has put pressure on truck fleet waiting for 2-3 days for return cargo to their home destination.

- Increase in vehicle prices by 4‐6% on account of Excise duty impacts sales: On account of price increase in March 2012 due to withdrawal excise stimulus on commercial vehicles, the HCV / trailer segment (16 ton - 40 ton range) witnessed 24.3% - 34.6% drop in sales during April 2012. This phenomenon is directly attributed to 5% drop in truck freight rentals on trunk routes and indiscriminate fleet expansion of high tonnage multi-axle trucks during last quarter ending March 2012, which was more due to large scale pre-ponement of truck chassis purchase to beat the much anticipated increase in excise duty, which in the Budget was raised by 5% on truck chassis resulting in an increase of Rs60000-Rs80000 on different variants.

- Panic sets in the truck freight market on account of uncertainty regarding freight availability: According to IFRT, the truck freight market for full truck load may continue to be under stress and uncertain. In case of this event coupled with delay in pick up in the manufacturing sector, the truck sales will take longer time to turn green. According to IFTRT, a very large number of fleet operators are putting of their plans of fleet expansion and first time users (FTUs) are getting scared of owning new trucks because of 20% increase in truck tonnage capacity during last fiscal and sudden drop in cargo availability in April month has triggered a panic button in truck freight market. Prabhudas Lilladher remain cautious on the Commercial Vehicle sales in the near to medium term given the current ground level situation.

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About Prabhudas Lilladher

Prabhudas Lilladher has a nationwide distribution network, consisting of branches, franchisees and associates, providing a comprehensive gamut of financial services in the Institutional and Retail domain. Their services includes Equity, derivatives; margin funding, mutual funds, PMS, IPOs and online trading.


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Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor accept any liability whatsoever arising from the use of any of the above contents.

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