Automobiles - CV Goods Segment: Truck Rentals slid 4-5% in Nov'12 - Prabhudas Lilladher

After remaining stable till mid-October, Truck rentals on the trunk routes slid by 4-5% in Nov'12 as cargo offerings slumped in the last fortnight (mainly SME sector) after peaking during Diwali festival. Consequently, the gains made during Oct'12 by way of 3-4% increase in rentals were eroded. Despite record discounts and soft auto finance schemes, M&HCV goods segment declined by 36.0% YoY in Nov'12. YTD FY13, the M&HCV goods segment declined by 20% YoY mainly on account of low cargo offering across segments and higher base of last year. LCV goods segment grew at 11.2% in November, with growth during April-Nov'12 at 18.8% YoY. We maintain our view that M&HCV goods segment would de-grow by 14-16% 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:

- Truck rentals slide by 4-5% across various trunk routes: The truck rentals during Nov'12 started falling in the second half of the month after stable period of first fortnight of Diwali festival and resulted in a drop in truck rentals by 4-5% on trunk routes, thereby, surrendering the gain of 3-4% in truck rentals on the back of brisk cargo offeings during six weeks covering Oct'12 and period up to November 14, 2012. The SME manufacturing sector, which provides 70% of the cargo coming from entire manufacturing sector, is passing through tough times due to pile-up of inventories on account of lower demand. The saving grace for the truckers has been increased. Cargo offering from wheat and rice exports, sustained domestic transportation of cement, tiles, sanitary material, pharma, FMCG goods and increased arrival fresh fruits & vegetables that has helped in stemming the further fall in their revenues.

- Lower resale value for old trucks - a big negative: The most significant negative development in the truck market has been the saddling of transport centres with huge inventory of over 2.5 lakh heavy trucks which are awaiting resale and the realisations / resale rates for various categories which are lower by 30-40%. This has led to crisis in the trucking industry and truckers are not able to generate working capital from sale of old trucks.

- Postponement of the induction of new trucks: The truckers are putting on hold induction of new trucks and fleet expansion despite heavy inducements coming from vehicle manufacturers and therefore, indiscriminate fleet expansion by operators has come to a halt because truckers have fresh memories of 2008-09 economic slowdown and resultant crisis in the truck transport business.

- Scenario likely to be gloomy till Mar'13 : The multiple adverse impact of lower cargo offerings, dropping truck rentals, slow down in manufacturing sector has led to drop in sale of new trucks and continuous usage of old trucks in the freight market as truckers are not able to dissolve their existing old fleet. There is strong possibility that if the situation does not improve by way of Government actions to boost its expenditure and demand, the truck rentals may face a further slide in the coming weeks.

- M&HCV goods segment de-grew by 20% during Apr-Nov'12 period: Despite vehicle manufacturers offering discounts on purchase of new vehicles and financiers offering low interest rates, there seems to be no substantial improvement in volumes. M&HCV goods segment declined by 36% YoY, with tractor trailer sales declining by 26.6% for the month of Nov 2012. YTD, the M&HCV Goods declined by 20.0% YoY, with FY13E decline estimated at 14-16%.

- LCV goods continues its growth trajectory @18.8% for April-Nov'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 18.8% for April-Nov'12 period. Ashok Leyland's LCV offering 'Dost' has received a good response, thereby, helping the company to gain market share of 7.2% in this competitive segment.

- CV goods growth slows to 2.4% YoY during Apr-Nov'12 period: The growth in industry truck sales (LCV & MHCV goods segment) slowed to only 2.4% YoY during Apr-Nov'12 period due to lower cargo availability and lower truck rentals. The 20.0% YoY decline in M&HCV goods segment was compensated by a 18.8% YoY growth in the LCV goods segment for Apr-Nov' 12 period.

The truck rentals during Nov'12 started falling in the second half of the month after stable period of first fortnight of Diwali festival and resulted in a drop in truck rentals by 4-5% on trunk routes, thereby, surrendering the gain of 3-4% in truck rentals on the back of brisk cargo offerings during six weeks covering Oct'12 and period up to Nov 14, 2012. The SME manufacturing sector, which provides 70% of the cargo coming from entire manufacturing sector, is passing through tough times due to pile up of inventories on account of lower demand.

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 18.8% for April-Nov'12 period and 11.3% in Nov'12 YoY. Ashok Leyland's LCV offering 'Dost' has received a good response, thereby, helping the company to gain market share of 7.2% in this competitive segment, whereas, M&M lost 0.8% share in Nov'12 YoY.

Newer players like Eicher in the M&HCV goods segment continue to gain market share and is likely to grow at a faster clip. Volvo-Eicher Commercial Vehicles (VECV) gained 220bps in market share during April-Nov'12 period to 13.1% and 620bps in Nov'12 YoY. Ashok Leyland market share increased by 240bps during April-Nov'12 period against a 4.4% decline reported by Tata Motors in Apr-Nov'12 period. Overall, the M&HCV segment has declined by 20.0% YoY in the April-Nov'12 period.

Source : Equity Bulls

Keywords