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    Credible scrappage policy to help CV market improve by Diwali: MM Forgings CMD

    Synopsis

    April, May, June is likely to be a very dull quarter.

    Vidyashankar Krishnan-1200ETMarkets.com
    Changing the axle load norms in July 2018 had changed the game because it added almost two years of production capacity into the truck market by increasing the haulage of the trucks that are available on the roads, says Vidyashankar Krishnan, VC & MD, MM Forgings. Excerpts from an interview with ETNOW.

    Domestic tonnage has been falling on a downslide and unstable export demand. How has your business been impacted by the headwinds that one is seeing? Are you witnessing any green shoots or do you it is a very long time away?
    This year, the domestic CV market has tanked with axle load norms, GST reducing transit time for long distance vehicle transportation and improvements in efficiency, coupled with the NBFC crisis. Altogether, demand has been pretty bad and we are down by about 30% this year. The saving grace is 30% because of our presence in exports. Otherwise, Indian CV market has fallen around 60%. It has been brutal.

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    What exactly are the steps taken to offset the impact of the CV down cycle? To what extent has diversifying helped?
    Other than diversifying, we have already been a major exporter. We had diversified into the domestic CV market recently or increased our presence over there and a good run, we have seen a huge fall over more than 12 months, particularly the last six months.

    I would say this play would take now another 12 months to pan out and we should see some movement by Diwali of this year.

    You said that the uptick will come around Diwali which means what you are indicating that for the next nine months we are in for more struggle in the CV space. You are not painting an optimistic outlook but rather being realistic here.
    I would love to be optimistic. My estimates range between June and November. The reason is as follows; after March, we have a pre buy like condition with BS-VI coming in from 1st of April onwards. CV buyers are queuing up to get what they can and that has been a little better than the last three, four months. CV manufacturers have pruned down their inventory to bearable levels. So up to April 1, we will see pre buy for BS-VI.

    April, May, June are traditionally dull months for the CV market. On top of this, we will see this pre buy and an overall low cyclical structural. So April, May, June is likely to be a very dull quarter. We should start picking up from June onwards when base demand should start to kick in. Changing the axle load norms in July 2018 had changed the game because it added almost two years of production capacity into the truck market by increasing the haulage of the trucks that are available on the roads.

    That cannot be wished away overnight, there will be pain associated with that move and hopefully the government will bring in a credible and substantial scrappage policy for CVs. That would really enthuse the market.

    We understand the policy is coming. Let us assume that the scrappage policy is rolled out in the next three months before June. What changes for you?
    Going back in history, one assumes that the package is for replacement of 20-year-old vehicles. In 2000, we produced 2,50,000 CVs, I am guessing that 20% of those were LCVs. So, we are looking at 200,000 M&HCVs that ought to be phased out. That makes a huge impact.

    Now, if the cut off is 15 years, in 2005, we produced around 3,50,000 CVs in the country, giving a greater percentage of that production to LCVs. LCVs have slowly caught up and I would expect M&HCVs to be in the region of 2,50,000 plus. So, that many M&HCV will be phased out from the roads of India. That adds in today’s terms, almost a 100% load to the current demand of CV makers!



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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