HomeAuto NewsThe commercial vehicle industry had a stupendous growth this year, says Cholamandalam Investment
The commercial vehicle industry had a stupendous growth this year, says Cholamandalam Investment
The commercial vehicle industry had a stupendous growth this year, said N Srinivasan, Executive VC & MD of Cholamandalam Investment and Finance Company.
Overall in 2017-18 after a period of five-six years they grew by about 20% across segments, Srinivasan told CNBC-TV18 in an interview.
Edited Excerpts:
This is a frenetic pace of growth - 54%. Can this be maintained? What is FY19 looking like?
The commercial vehicle industry had a stupendous growth this year. Overall in 2017-18 after a period of five-six years they grew by about 20% across segments; medium and heavy commercial vehicles (M&HCV), light commercial vehicles (LCV) and mini LCVs. What we understand from the original equipment manufacturers (OEMs), this growth is expected to continue for the next three-four years. In terms of numbers people say two-three-four years, but definitely for 2018-19 this growth is likely to continue and 70% of our revenue on profit comes from commercial vehicle financing. Therefore, we are quite bullish about that.
What kind of a growth do you see as far as commercial vehicle disbursement is concerned? You are sitting on a base of almost about Rs 7,000 crore. What could be a sustainable run rate you think?
In the last four years our disbursements per annum is at CAGR of about 25%. 2017-18 has been an exception. In 2017-18 we have grown about 35% in terms of disbursement and also in 2017-18 our AUM grew at about 25% whereas the average for the last four years is close to about 19-20%. The effect of industry growing by about 21%. If you see the CV industry growth between 2013-14 and 2016-17, it was almost like flat. So, 20% growth this year has catapulted our disbursement number to about 35. So I believe anything between 25 and 30 looks possible at this point in time.
You are also a veteran of many such cycles. Commercial vehicles have, this three year rising cycle and then it tapers off. What would your comment be generally looking three years into the future? How long can the good times last?
It is difficult to predict that way but if growth sustains. It’s all relating to infrastructure, how much of road. So many unexpected things are happening. Today, the road development ministry has said they are going to monetise and bring in a lot of cash. So these kinds of things happen and if growth continues then probably it can sustain for six-seven years and beyond.
When there is growth then truckers are willing to pay a little more by way of interest rates because they see business getting done, are you already seeing that that fleet operators are coming in and lining up because yields are higher but they are willing to pay the price.
As of now, I would say even though the market rate have gone up in March. Since March, the interest hike has not been passed on; there is still stiff competition in interest rates and the truckers are willing to pay a higher price for a truck in terms of technology, in terms of higher tonnage etc. But so far the interest rate hike has not been passed on to them, but as of now it is actually the demand; if you meet a dealer who was selling 20 vehicles, now selling about 40-50 vehicles; stock is not available, there is a supply constraint. So possibly a marginal hike may not have an impact.
The margins could be a little under pressure? You could shave off a little bit of margins but you will do excellent well in volumes of business done. What would your margin guidance be?
For example, if the interest rate is likely to go up by 0.5%, we are working on some plans to mitigate the impact. I maybe take in stride and then continue the margins which probably we are experiencing currently because volume growth will give us certain advantage.
To put some more number on this. You were talking about the higher tonnage trucks being sold and that is a feedback that we have got from other participants as well. What else is leading to better demand, are you seeing higher pickup as far as replacement demand is concerned, is there higher demand expectation because of vehicle scrappage policy. What all do you think could lead to more demand in the CV space?
There are number of factors but I will say few things; the OEMs maybe in a better position to say this. As far as heavy commercial vehicles are concerned, the load restriction that is imposed; earlier in 15 tonner you could loan about 20-21 tonne and now there is load restriction, the governments are enforcing it strictly. Therefore, people are moving to higher tonnage to accommodate larger tonnage, which is also more economical for them. Second, more roads are getting laid for long distance, the heavy commercial vehicles are generally preferred. On the LCV side and medium LCV side the e-commerce sales picking up and post goods and services tax (GST) the hub and spoke model coming in, a lot of vehicles been preferred for local distribution. So that sets the distribute demand for LCV segment.
Will you buy any company?
Very unlikely because at the current prices NBFC acquisition will be expensive. Second, organically there are plenty of opportunities. Why to acquire something at a high cost.
Overall in 2017-18 after a period of five-six years they grew by about 20% across segments, Srinivasan told CNBC-TV18 in an interview.
Edited Excerpts:
This is a frenetic pace of growth - 54%. Can this be maintained? What is FY19 looking like?
The commercial vehicle industry had a stupendous growth this year. Overall in 2017-18 after a period of five-six years they grew by about 20% across segments; medium and heavy commercial vehicles (M&HCV), light commercial vehicles (LCV) and mini LCVs. What we understand from the original equipment manufacturers (OEMs), this growth is expected to continue for the next three-four years. In terms of numbers people say two-three-four years, but definitely for 2018-19 this growth is likely to continue and 70% of our revenue on profit comes from commercial vehicle financing. Therefore, we are quite bullish about that.
What kind of a growth do you see as far as commercial vehicle disbursement is concerned? You are sitting on a base of almost about Rs 7,000 crore. What could be a sustainable run rate you think?
In the last four years our disbursements per annum is at CAGR of about 25%. 2017-18 has been an exception. In 2017-18 we have grown about 35% in terms of disbursement and also in 2017-18 our AUM grew at about 25% whereas the average for the last four years is close to about 19-20%. The effect of industry growing by about 21%. If you see the CV industry growth between 2013-14 and 2016-17, it was almost like flat. So, 20% growth this year has catapulted our disbursement number to about 35. So I believe anything between 25 and 30 looks possible at this point in time.
You are also a veteran of many such cycles. Commercial vehicles have, this three year rising cycle and then it tapers off. What would your comment be generally looking three years into the future? How long can the good times last?
It is difficult to predict that way but if growth sustains. It’s all relating to infrastructure, how much of road. So many unexpected things are happening. Today, the road development ministry has said they are going to monetise and bring in a lot of cash. So these kinds of things happen and if growth continues then probably it can sustain for six-seven years and beyond.
When there is growth then truckers are willing to pay a little more by way of interest rates because they see business getting done, are you already seeing that that fleet operators are coming in and lining up because yields are higher but they are willing to pay the price.
As of now, I would say even though the market rate have gone up in March. Since March, the interest hike has not been passed on; there is still stiff competition in interest rates and the truckers are willing to pay a higher price for a truck in terms of technology, in terms of higher tonnage etc. But so far the interest rate hike has not been passed on to them, but as of now it is actually the demand; if you meet a dealer who was selling 20 vehicles, now selling about 40-50 vehicles; stock is not available, there is a supply constraint. So possibly a marginal hike may not have an impact.
The margins could be a little under pressure? You could shave off a little bit of margins but you will do excellent well in volumes of business done. What would your margin guidance be?
For example, if the interest rate is likely to go up by 0.5%, we are working on some plans to mitigate the impact. I maybe take in stride and then continue the margins which probably we are experiencing currently because volume growth will give us certain advantage.
To put some more number on this. You were talking about the higher tonnage trucks being sold and that is a feedback that we have got from other participants as well. What else is leading to better demand, are you seeing higher pickup as far as replacement demand is concerned, is there higher demand expectation because of vehicle scrappage policy. What all do you think could lead to more demand in the CV space?
There are number of factors but I will say few things; the OEMs maybe in a better position to say this. As far as heavy commercial vehicles are concerned, the load restriction that is imposed; earlier in 15 tonner you could loan about 20-21 tonne and now there is load restriction, the governments are enforcing it strictly. Therefore, people are moving to higher tonnage to accommodate larger tonnage, which is also more economical for them. Second, more roads are getting laid for long distance, the heavy commercial vehicles are generally preferred. On the LCV side and medium LCV side the e-commerce sales picking up and post goods and services tax (GST) the hub and spoke model coming in, a lot of vehicles been preferred for local distribution. So that sets the distribute demand for LCV segment.
Will you buy any company?
Very unlikely because at the current prices NBFC acquisition will be expensive. Second, organically there are plenty of opportunities. Why to acquire something at a high cost.
(Edited by : Salmanul Farisy)
Check out our in-depth Market Coverage, Business News & get real-time Stock Market Updates on CNBC-TV18. Also, Watch our channels CNBC-TV18, CNBC Awaaz and CNBC Bajar Live on-the-go!
