Comprehensive Pack

Commercial Vehicles

1
• Industry Structure :3

• Industry Characteristics : 10

• CV Finance : 19

• Competitive Scenario : 30

• Demand Outlook : 47

• CV Exports : 70

• Costs and Profitability : 86

2
 Industry Structure

3
Classification of CVs

4
 Domestic CV industry remains oligopolistic

• Historically, the domestic commercial vehicles (CV) industry has been dominated by three
players - Tata Motors, Mahindra & Mahindra and Ashok Leyland. Within these, market
shares in different segments of CVs vary over time.
• Of late, several new players are gaining a toehold and vying for a share of the growing
market.

5
Commercial vehicles segments

• Commercial vehicles (CVs) are broadly classified as goods vehicles and passenger
vehicles, based on usage.
• The two segments are further classified each as light commercial vehicles (LCVs) and
medium and heavy commercial vehicles (MHCVs), based on the gross vehicle weight
(GVW) of the vehicles.

6
Major CV players in India

• The Indian CV industry is dominated by three original equipment manufacturers (OEMs) -

Tata Motors, Mahindra & Mahindra and Ashok Leyland - together accounting for ~86% of
sales in fiscal 2020.
• Tata Motors, the oldest player, remains the strongest, with ~42% market share, followed
by Mahindra & Mahindra at ~28%. Ashok Leyland, which used to be the second largest
player, has now slipped to the third slot with a market share of ~16%.

7
Player-wise market share

Source: SIAM, Crisil Research

8
Large and small operators are end-users of CVs

• Typically, large fleet operators (LFOs) own more than 20 trucks. As their business model
entails freight transportation of varying loads, LFOs usually own a mix of LCVs and
MHCVs.
• With a large customer base, the operators have a higher proportion of contract business,
though they enter into some spot business as well.
• Small fleet operators (SFOs) own between 1-5 trucks. SFOs usually operate within a local
area and use LCVs for transportation, through which they carry out last mile transportation
of goods, mainly on the basis of spot freight rates.
• Some SFOs are attached to LFOs, who outsource their business and pay hire charges.

9
 Industry Characteristics

10
 CV demand linked to economy

• Domestic CV demand has high correlation to the country's GDP.

• Apart from economic growth, demand for CVs also depends on freight movement, share
of roads in overall freight movement, changes in freight rates and fuel prices, profitability
of truck operators and state transport undertakings, and government policies.

11
Commercial vehicle demand closely aligned with economic cycles
• Medium and heavy commercial vehicles (MHCVs) with their higher payload and engine
capacities are used to transport industrial goods over long distances across the country.
• As gross domestic product (GDP) are indicative of available freight and its traffic growth,
MHCV sales can be correlated to it.
• MHCVs transport goods to hubs in the hub and spoke model which is then redistributed
by large logistics providers using light commercial vehicles (LCVs) for last mile
transportation within a smaller radius of a city, town or district.
• As LCVs are used for the transportation of consumer goods and redistribution freight, its
sales can be partly linked to MHCV sales and partly to consumption expenditure (an
indicator of consumer goods growth).

12
Commercial vehicle demand closely aligned with economic cycles
• Sales volumes in the past have been volatile due to the cumulative effect of factors such as
government policies; industrial production; agricultural output; share of roads in freight
transportation, and transporters' cost of operations and profitability.
• This is reflected by the economic slowdowns of fiscal 2009 and 2014, which saw volumes
dip sharply.
• Post that, the industry started recovering slowly, in line with economic growth.
• CV sales have since been continuously improving, despite demonetization in FY 2017.
• In fiscal 2020, freight demand was weak as GDP growth for the fiscal was 4.2%.
• LCV goods sales fell by ~21% in fiscal 2020 due to slowing private consumption, lesser
availability of market load and lower loan-to-value now being offered to transporters
amidst the ongoing NBFC liquidity crunch.
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Commercial vehicle demand closely aligned with economic cycles

• Demand for buses was impacted due to safety regulations (emergency exit doors, fire
detection and suppression, escape hatches and emergency lighting) in FY20 that have led
to an increase in cost of ownership of ~Rs. 50,000. This is over and above a price hike of
~Rs. 15,000 due to mandatory installation of vehicle tracking system and panic buttons in
January 2019.
• Further COVID-19 impacted the sales in the month of March 2020.

14
CV sales growth (volume terms)

Source: SIAM, Crisil Research

15
CVs account for lion's share in freight transportation

• An increase in average household income and therefore expenditure, growth in industrial

output and improvement in the construction and mining space propelled total freight
availability.
• Despite roads and railways being the most popular transportation modes, constraints on
railways' infrastructure have aided growth in road freight transportation share.
• As of fiscal 2020, roads carried 75% of the total freight, while railways carried the
remainder.

16
Road vs rail freight share

Source: SIAM, Crisil Research

17
Relatively concentrated manufacturers while end-user largely unorganized
• Indian CV industry is oligopolistic in nature, with the top three players accounting for
~86% of total sales volumes, as of fiscal 2020 (has remained the same in the last three
years).
• One of the major reason for this is the fact that setting up a CV manufacturing facility
requires high capital investment.
• Tata Motors continues to dominate the CV market with 42% share, followed by Mahindra
& Mahindra (M&M) with 28%, and Ashok Leyland with 16% share.

18
 CV Finance

19
 Axle norms, and declining transporter profitability ailing CV financing in
fiscal 2020
• Till FY19, disbursement in new MHCV sales has been on an upward trend since FY15
while LCV disbursement has been growing since FY16.
• Weak CV demand in FY20 has lowered disbursement in FY20.
• High competition between CV financiers tend to keep LTVs high.

20
Disbursement for new commercial vehicle finance fell sharply in FY20; Weak
CV demand brought down disbursement

Source: SIAM, Crisil Research

21
Disbursement for new commercial vehicle finance fell sharply in FY20; Weak
CV demand brought down disbursement
• Growth in commercial vehicle (CV) loan disbursement slowed down to -36% from 22%
witnessed in fiscal 2019, due to lower demand from large fleet operators (LFOs, which have
more than 20 trucks) and small fleet operators (SFOs, with 1-5 trucks) on account of
overcapacity due to new Axle norms and general slowdown in the economy.
• CV wholesale offtake in volume terms witnessed a slowdown in growth to -31% vs 18% in
fiscal 2019.
• Average prices of the vehicles in LCV segment grew by 1-2% in fiscal 2020 as against 0-
1% in fiscal 2019; similarly, in MHCV segment prices declined by -3% in fiscal 2020 as
against 4-4.5% in fiscal 2019 dragging down overall financing growth.

22
CV loans concentrated in top 20 cities

• The top 20 cities account for 40-45% of the total outstanding CV financing portfolio.
• These cities account for a greater share of MHCV loans, which have an average ticket size
of about Rs 1.2 - 1.3 million compared with ticket sizes of about Rs 0.35 - 0.45 million for
LCVs. The proportion of LCV sales is higher in regions outside the top 20 cities.

23
Finance penetration to remain high

• The CV finance industry is already highly penetrated. Typically, around 97% of the vehicles
purchased are funded externally.
• Within segments, MHCVs have marginally higher finance penetration compared to LCVs
owing to the higher vehicle price and the better credit profile of the customers (generally
large fleet operators).

24
Segment wise finance penetration

Source: SIAM, Crisil Research

25
Commercial vehicle financing caters to diverse customer segments
• There are mainly four customer segments: Large fleet operators (LFO) – operators with >
20 vehicles
• 1. Medium fleet operators (MFO) – operators with 4 to 20 vehicles
• 2. Small fleet operators (SFOs) - operators with 1 to 4 vehicles, and
• 3. First-time users (FTUs) / First Time Buyers (FTBs)

26
Typical market share of different customer segments in new CV financing
(based on industry AUMs)

Source: SIAM, Crisil Research

27
NBFCs focus on SFO and FTU segments
• NBFCs focus on financing CV purchases by SFOs and FTUs. Limited availability of
income documents and lack of repayment track records make these customers relatively
risky; accordingly, share of disbursements to FTU and SFO would have declinedb currently.
• NBFCs offer higher LTVs than banks to such buyers. Their extensive presence enables
them to have better knowledge about customers.
• Simple documentation with faster turnaround time and doorstep services further add to their
competitiveness.
• Private banks dominate new CV financing market Banks have mainly focused on lending
for MHCVs being bought by LFOs.
• SFOs depend mainly on LFOs and MFOs for business.

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NBFCs focus on SFO and FTU segments
• LFOs control a significant part of the market by attaching (hiring) vehicles of SFOs, and
hence, are more resilient to downturns.
• LFOs have a relatively better credit profile and are mainly catered to by banks, who can
offer cheaper interest rates to these customers NBFCs, on the other hand, focus more on
financing MHCV and LCV purchases (new as well as used) by SFOs and FTUs.
• Captive financing arms of auto manufacturers have the highest proportion of FTUs in their
portfolio.
• Besides the high risk, the limited availability of income documents, lack of a good
repayment track record, and cash collection through regular visits from sales staff, which
may drive up operating expenses, restricts banks from aggressively catering to the
SFO/FTU segment
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 Competitive Scenario

30
CV players race to retain share as turf war intensifies

• Even as Tata Motors still reigns in the commercial vehicles (CV) segment, players such as
Ashok Leyland and Mahindra & Mahindra are posing a threat to Tata Motor's dominance.
• Foreign players such as Daimler have gained prominence in recent years.

31
Ashok Leyland gained in T-Trailers, Tata Motors gained in MCVs in FY20

• An indicator of the lowering of competitive intensity in the industry, the Herfindahl-

Hirschman index (HHI), remained high for all tonnage segments except multi axle vehicles
in fiscal 2020 vis-à-vis fiscal 2019 as segment leaders gained share over the competition.
• In MAVs, VECV gained share from Ashok Leyland and Tata Motors thereby increasing
the competitive intensity in the segment.

32
Sub-one-tonne and pickup segments
Maruti Suzuki gained market share at Tata Motor’s expense

• Maruti Suzuki, with its only model in commercial vehicle segment, “Super Carry”,
launched in July 2016, is a player to contend with now.
• In its year of launch, it managed to garner ~6% market share in the sub-one tonne segment
which increased to ~12% in FY20.
• Maruti Suzuki has continued to gain share in 9M FY21 and currently has ~21% share.
• The launch of the CNG variant of Jeeto in the second half of fiscal 2017 is expected to have
led to M&M regaining its share which it lost in fiscal 2017, owing to the launch of Super
Carry.
• However, M&M gained share in fiscal 2019 with the launch of the Supro Minitruck in
February
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2018.
Sub-one-tonne and pickup segments
Maruti Suzuki gained market share at Tata Motor’s expense

• In response, Tata launched the revamped version of the old Ace – Ace Gold which has
failed to help the segment leader stem the fall in its share in fiscal 2020.
• M&M has launched the Jeeto Plus in November'19 which is expected to have restrict loss of
its market share in this segment.
• Also, Tata Motors had production issues in H1 Y21 which limted its production and hence,
it conceded some market share to M&M an Maruti Suzuki.

34
Maruti Suzuki gained share in sub-one tonne segment (0-2T GVW)

Source: SIAM, Crisil Research

35
Tata Motors and M&M gained share in the FY20 under pickups
• In fiscal 2018, Tata Motors had managed to claw back some of its lost share with the launch
of Ace Mega in pickups and the XL series .
• In response, M&M introduced schemes such as guaranteed resale value and two years of
free maintenance on the Bolero pick up and Maxitruck range in February 2018, besides
introducing the Supro Maxitruck heavy duty series.
• In October 2018, M&M also launched the ‘Maha Bolero pickup’ with 1700 kg payload.
• Ashok Leyland, too, is slowly eating away market share of Tata Motors with the launch of
Dost+ in H2FY18.
• Despite the launch of 'Intra' pickup in Q1FY20 Tata Motors failed to gain share.
• M&M in H2FY20 also launched the ‘Bolero City pickup’ designed especially for urban
goods transportation.
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Tata Motors and M&M gained share in the FY20 under pickups

• Aggressive stance by Ashok Leyland and Tata Motors have helped them gained share in 9M
FY21 at the expense of M&M who are expected to have been impacted by production
issues.
• Ashok Leyland has launched 'Bada Dost' in this category to gain market share and it too has
aided volumes.

37
Ashok Leyland and Tata Motors gains share at the expense of Mahindra in
the pickup segment in Apr-Dec fiscal 2021

Source: SIAM, Crisil Research

38
Tata Motors able to fend off smaller players with new launches gaining
share in ULCVs
• In the upper-end LCV segment, VECV was able to eat away Tata Motors' share between
fiscals 2013 and 2018, with launch of its PRO 1000 series.
• Ashok Leyland too, is gaining market share with its “Partner” model.
• Tata Motors announced the nation-wide launch of next-gen light commercial vehicles under
the brand Ultra in the upper end LCV segment which has helped it gain share to a certain
extent in FY20.
• Mahindra and Mahindra is expected to have lost market share due to supply constraint
issues in 9M FY21.

39
M&M lost share in the upper-end LCV segment (3.5T-7.5T GVW)

Source: SIAM, Crisil Research

40
M&M new entrant in ICVs, Tata Motors gains share with the Ultra range of
ICV trucks
• Since the launch of Boss, Ashok Leyland has rapidly gained market share in the ICV
segment.
• The launch of Guru in fiscal 2017 has further strengthen Ashok Leyland's position. It
launched new vehicles of BOSS series in ICV segment: BOSS 913 and BOSS 1214 in fiscal
2018 and Guru 1010 in fiscal 2019.
• In fiscal 2019, Tata Motors, too, strengthened its offering in the segment with the nation-
wide launch of next-gen commercial vehicles under the brand Ultra in April 2018 for all
tonnage segments under ICV after robust demand for the Ultra 1518 ICV in H2FY18.
• M&M, in fiscal 2019, unveiled a new range of intermediate commercial vehicles (ICV)
under the brand Furio, which will see a host of launches over the next 1-2 years.
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M&M new entrant in ICVs, Tata Motors gains share with the Ultra range of
ICV trucks
• VECV, on the other hand, launched CNG variants of its ICVs to gain share in the Delhi
NCR region.
• In FY20, Tata Motors gained share in the segment at the expense of Ashok Leyland with
the help of the Ultra branded trucks.
• In H1 FY21, Ashok Leyland and Tata Motors are estimated to have lost share whereas
VECV is estimated to have gained market share compared to H1 FY20.
• Ashok Leyland has launched the new range of BOSS ICVs in Oct 2020 to increase its
market share whose performance remains a monitorable.

42
Tata Motors consolidated its market leadership in FY20 under ICVs (7.5-
15T GVW)

Source: SIAM, Crisil Research

43
MHCVs
Tata Motors gained back lost share in fiscal 2019 and 2020

• Tata Motors regained lost share in fiscal 2019 with robust demand for the Signa trucks and
Tata Hyva tippers with the infrastructure push seen in fiscal 2019.
• In FY20, as well, robust sales in the MCV segment has helped Tata Motors gain share.
• Ashok Leyland, plans to gain share in the mining tipper segment with the expected launch
of the 320hp tippers in fiscal 2019.
• So far its tipper range was limited to 230hp and the vehicle is expected to compete with
global players in the segment.
• In H1 FY21, Ashok Leyland is estimated to have lost share whereas Tata Motors and VECV
are estimated to have gained market share compared to H1 FY20.

44
Tata Motors continues to lead in MHCVs (>=16.2T GVW)

Source: SIAM, Crisil Research

45
Foreign OEMs find it tough in the highly competitive CV industry
• With falling demand for its premium truck range, MAN Trucks, has decided to discontinue
its operations from the country by October 2018.
• The MAN truck range was being manufactured at the company's production plant located at
Pithampur, Madhya Pradesh.
• This plant with an annual production capacity of 10,000-12,000 units has now been taken
over by Force Motors.
• Moreover, a lack of demand for its premium buses has seen Scania announce plans to shut
down its in-house bus body building operation at its plant in Narasapura.
• However, the company’s manufacturing operations for bus chassis and truck chassis would
continue as before.

46
 Demand Outlook

47
Post significant slowdown in FY21, commercial vehicle industry to record
robust growth in long term
• CV sales has plummeted in fiscal 2020 and is expected to further fall in 2021.
• The fall in sales has created a low base over which growth in the next four years would be
seen.
• Long term growth post fiscal 2021 is expected to be robust

48
Demand for goods carrying medium & heavy commercial vehicle to lead in
the next five years
• MHCV sales are likely to rise by ~8-10% compound annual growth rate (CAGR), over a
low base, from fiscal 2020 to 2025 (fiveyear CAGR), as compared to the previous five-
year (FY15-20) fall in CAGR of ~1%.
• Moreover, tonnage addition is expected to improve in-line due to a better product mix
(higher growth in MAV and T-Trailer demand despite a shift to lower tonnage vehicles due
to axle norm).
• Long term growth to appear higher over a low base after a ~47% drop in sales in FY20.
• The five year growth will be despite an expected fall of ~26-28% in fiscal 2021 due to the
COVID-19 outbreak.

49
Demand for goods carrying medium & heavy commercial vehicle to lead in
the next five years

• Factors driving long-term MHCV sales will be the improving industrial activity in the
country, steady agricultural output, and the government’s focus on infrastructure.
• However, volume growth will be limited due to efficiencies achieved from the goods and
services tax (GST), better road infrastructure along with the commissioning of the
dedicated freight corridor (DFC).

50
Factors driving MHCV growth

• Healthy industrial growth from FY22 to aid revival The Indian industry's gross value
added (GVA) had been growing tepidly, averaging ~5% between fiscals 2015 and 2020.
• After a weak fiscal 2021 due to the COVID-19 outbreak, industrial GVA to grow rapidly
over the next four-year period (fiscal 2022-2025), driven by the government's focus on
'Make in India'.
• Moreover, improvement in infrastructure and higher expected corporate expenditure is
likely to revitalize the capex cycle going forward post FY21.

51
 Focus on infrastructure and higher mining production to
bolster tipper demand

• Recognizing the impetus needed by the economy, the government continued its push on
infrastructure.
• The investment of Rs. 100 lakh crore for infrastructure over the next five years was
announced in the budget 2019 speech implying Rs. 20 lakh core of spending per year.
• Execution by the National Highways Authority of India (NHAI) will reach up to 12
km/day in fiscal 2024, as against ~10 km/day in fiscal 2020, aided by the Bharatmala
project.
• Projects such as Sagarmala and investments in various irrigation projects will further
drive MHCV demand.
• Coal production to expand at ~4-5% CAGR between fiscals 2020 and 2025, while iron ore
mining will also likely grow at a healthy pace during this period, aiding tipper demand.

52
Factors arresting MHCV growth

• Commissioning of DFC to restrict road freight growth and hence CV sales The dedicated
freight corridor (DFC) is intended to help the Indian Railways regain lost freight share by
cutting turnaround times between importing and consuming destinations, compelling
several industries to realign their logistics strategies.
• The DFC and associated logistics parks can significantly reduce plant-level inventory,
enabling huge savings in working capital.
• Not only will the DFC bring about faster freight movement, but it will also aid the
economy by decongesting major highways due to the increased shifting of freight to rail.
• It will also allow for faster evacuation of cargo from ports, improving efficiency.
• Thus, roads, which have outperformed rail over the past decade, will lose some share to
rail once the DFC is commissioned.
53
Factors arresting MHCV growth
• Tractor trailers will be the most vulnerable to competition from the railways, following
completion of the eastern and western DFCs.
• These routes account for more than 20% of pan-India primary freight in billion tonne
kilometer (BTKM) terms. Container traffic (~65% of the western corridor) and bulk
commodities (~89% of the eastern corridor), which dominate the freight carried on these
routes, are expected to shift to railways, thus impacting sales of MHCVs, especially
Trailers.
• In fiscal 2022, the partial commissioning of the western DFC would connect Gujarat to
North India via the dedicated freight corridor.
• Movement of fertiliser from Gujarat to north India would drive rail share from FY22
impacting T-trailer demand.
54
Rail BTKM share to rise due to DFC

Source: SIAM, Crisil Research

55
Enhanced operations due to better road infrastructure to lower truck
demand
• Improvement in road infrastructure is expected to increase the average speed of trucks,
leading to efficiency gain of ~10%.
• Hence, fewer trucks will be required to move the same quantity of goods, lowering truck
demand.
• On the other hand, increased running of trucks will help improve the competitiveness of
the road transportation industry, helping attract more freight.

56
Axle norm to lead to a shift from T-Trailers to MAVs

• The Ministry of Road Transport and Highways had notified new axle load norms for
commercial vehicles, which allow for an increase in the load-bearing capacity of trucks
by ~20%. The new axle norms will be applicable to the entire lot of freight-moving
trucks – called the ‘population park’.

Source: SIAM, Crisil Research

57
Axle norm to lead to a shift from T-Trailers to MAVs
• After implementation of the axle norm, the payload of the erstwhile 37T GVW truck
would increase to 31T which would be similar to the erstwhile payload of a 40T GVW
T-Trailer.
• Also, erstwhile 49T T-trailer’s payload has now increased from 35T to 41T.
• Rated load availability at the 41T mark is expected to be lesser than at 35T. Moreover,
issues like driver availability and lower maneuverability plague T-Trailers.
• Because of these reasons, higher tonnage multi axle vehicles (MAVs) are likely to be
more desirable than T-Trailers and its impact will play through in the long run.
• About 50-55% of the transporters that ferry bulk goods to be running on rated payload. .

58
MHCVs: Higher tonnage segments to grow at a greater pace over a low base
in the next five years
Segment-wise sales volumes

Source: SIAM, Crisil Research

59
LCV sales to grow at a modest pace in the long run
• Light commercial vehicle (LCV) demand is expected to expand at 4-6% CAGR from fiscal
2020 to 2025, due to higher private consumption, lower penetration, greater availability of
redistribution freight and improved finance availability post FY21.
• Long term growth to appear weaker after an expected ~26% drop in sales in FY21, post
which demand to rise at a healthy pace.
• Within LCVs, the shift towards pick-ups (which carry higher loads) from sub-one tonne
vehicles will curb sharper growth in sales volume, as fewer trucks will now be required to
transport the same quantity of material.
• Upper-end light commercial vehicles (ULCVs) offer the transporter lower returns, as
compared with ICVs, and are most suited for captive use.
• Entry restriction on ICV trucks and higher tonnage MHCVs is expected to keep demand
from this segment buoyant.
60
LCV sales to grow at a modest pace in the long run

• However, higher toll on ULCV trucks vs. pickups will limit growth in the segment.
• Replacement demand is expected to be positive in fiscal 2021 as some replacement sales
that was expected in FY20 would have got postponed to FY21.
• Improving volumes up for replacement in the terminal years would aid demand growth.

61
Tonnage up for replacement for LCVs to limit decline in fiscal 2021 and aid
demand till fiscal 2025

Source: SIAM, Crisil Research

62
Pickups to lead in growth in the next five years

63
Key trends among LCVs
• Wide array of products in SCVs to attract volume: The SCV segment now offers a wide
range of products, covering various tonnages that cater to the needs of all types of
customers.
• Players have launched numerous products, especially over the past five years, to plug gaps
in tonnages.
• Moreover, new players such as Maruti Suzuki, which entered the segment in fiscal 2017,
are expected to improve competition in the segment.
• In fact, Maruti Suzuki has already garned ~13% share in the sub-one tonne segment in
FY20.
• Pick-up sales to outpace sub-one tonne vehicles: Smaller pick-ups, launched over the past
3-4 years, have the combined features of mini-trucks and large pick-ups.
64
Key trends among LCVs

• With their compact size, smaller pick-ups provide the last-mile support of mini-trucks and,
owing to their power, can ply on inter-city routes like large pick-ups.
• They are better suited for niche applications (e.g., pick-ups are more suitable to transport
produce that requires cold storage).
• Furthermore, small pick-ups have superior cost economics over minitrucks as they can
carry nearly 1.5 times the load of a mini-truck when overloaded, while costing only 25%
more.

65
Three-wheeler segment to grow at a tepid pace
• In the past five years, SCVs, especially sub-one tonne models (0.75 tonne payload), were
substituting large three-wheelers of similar payload capacity, given the SCVs' ability to
carry loads beyond payload capacity, run on longer routes, maintain better balance, and be
more cost-efficient.
• This pace of substitution has slowed down as much of the shift has already taken place.
• Rural areas still prefer use of three-wheelers because of a lack of infrastructure.
• Consequently, goods three-wheeler sales are expected to record a tepid 2-4% CAGR
between fiscals 2020 and 2025.

66
Bus demand to grow modestly over the next five years
• Domestic bus sales to expand at ~1-3% CAGR between fiscals 2020 and 2025 due to
increasing demand for inter-city/state travel, aided by better road infrastructure, and higher
personal disposable incomes.
• The unregulated segment, which primarily caters to demand from schools, companies and
inter-city travel by private operators, will remain the largest end-user.
• However, further expansion in bus sales would be impacted by the implementation of
metro-rail and monorail in several cities.
• Bus demand is expected to grow at a rapid pace pose FY21 where sales are expected to
drop by ~75-80%.

67
LCV buses to grow at a higher pace over a low base vs. MHCV buses

68
Other factors impacting demand
• Replacement of buses sold for JNNURM I expected post FY21 JNNURM – I (Jawaharlal
Nehru National Urban Renewal Mission) buses, sold during the peak seasons of fiscals
2011 and 2012, are expected to be replaced once funds are released by the central and
state governments for purchase.
• This replacement is expected to gain pace post fiscal 2021, aiding long-term MCV bus
growth.

69
 CV Exports

70
Commercial vehicle exports
• Commercial vehicle (CV) exports declined significantly by 39.2% in fiscal 2020 due to
50% decrease in medium and heavy commercial vehicles (MHCV), LCV segment declined
by 29%.
• Exports in the goods segment de-grew by 44.3%, led by sharp decline in the MHCV goods
segment; the passenger (bus) segment declined by 3.5% in fiscal 2020.

71
Trend in vehicle exports

Source: SIAM, Crisil Research

72
Trend in goods vehicle exports

Source: SIAM, Crisil Research

73
Trend in passenger vehicle exports

Source: SIAM, Crisil Research

74
Tata Motors remains largest CV exporter
• Tata Motors has retained its dominant position as India's largest CV exporter despite losing
its market share - declined to 48% in fiscal 2020 from 58% in fiscal 2012 -- mainly to
Mahindra & Mahindra (M&M) in the LCV segment and to Ashok Leyland and VECV in
medium and heavy commercial vehicle (MHCV) segment.
• Tata Motors and Ashok Leyland, led by their new truck range, aim to double their volumes
and expect export contribution in total production to jump 15-20% in next three-five years.
• Tata Motors have started exporting Prima trucks to emerging markets such as Vietnam,
South Africa, Malaysia and Kenya, besides other ASEAN (Association of Southeast Asian
Nations), Arab and African countries.

75
Total export market share

Source: SIAM, Crisil Research

76
Market share in goods vehicle exports

Source: SIAM, Crisil Research

77
Market share in passenger vehicle (buses) exports

78
Export operations of major OEMs
Tata Motors
• Tata Motors has established its operations in the UK, South Korea, Thailand, South Africa
and Indonesia through alliances and joint ventures.
• The company also markets and exports vehicles to Europe, Africa, the Middle East,
Southeast Asia, South Asia, South America, CIS (Commonwealth of Independent States)
countries and Russia.
• SAARC (South Asian Association for Regional Cooperation) nations such as Sri Lanka,
Bangladesh and Nepal have traditionally been strong markets for its trucks.
• It has franchisee/joint venture assembly operations in Kenya, Bangladesh, Ukraine, Russia
and Senegal.

79
Export operations of major OEMs
Tata Motors
• The company has developed its Prima range of trucks to meet international standards. Other
than the Prima range, its main export products are pick-up truck Xenon XT and mini-trucks
Ace and Ultra.
• Tata Motors began selling its range of CVs in the Philippines The company unveiled two
new Prima heavy-duty trucks in Saudi Arabia – the Prima 4438.S (4X2) tractor head and
the Prima 4038.K (6X4) construction tipper, with KSA dealer-partner – Manahil
International Company, a unit of Mohamed Yousuf Naghi & Brothers group (MYNM) It is
foraying into Bolivia through a distribution agreement with local partners Bolivian Auto
Motors Tata Motors signed a distribution agreement, supply agreement and technology
license agreement with TMT Joint Stock Co of Vietnam for TMT to become the official
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Ashok Leyland
• The company has entered into joint ventures and undertaken acquisitions to expand its
operations.
• Its primary export markets include Sri Lanka, Bangladesh, Nepal and other SAARC
countries.
• The company has also been receiving healthy export orders from African countries for
trucks, buses, LCVs, spares and allied support services, including training and development
• consultancy.
• Through its UK subsidiary, Optare, the company operates in the UK, Australia and New
Zealand bus markets.
• It has been very active in increasing exports in the last year.

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Ashok Leyland
• Ashok Leyland (ALL) has set up a 600-800 units per month assembly plant in joint
collaboration/tie-up with IFAD Autos Ltd, Bangladesh Ashok Leyland will start exporting
LCVs and is working on left-hand drive version of its LCVs for this purpose.
• Since 80% of the world market comprises left-hand drive (LHD) vehicles, the company is
working on LHD version of Dost LCV and the Mitr range of vehicles After parting ways
with Nissan, which had imposed exports ban on Ashok Leyland and only allowed exports in
SAARC region, Leyland is planning to expand its horizon to domains like Russia, Africa,
Ukraine and South-East Asia.

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VECV
• VE Commercial Vehicles Ltd (VECV), a joint venture between Volvo and Eicher, exports to
Sri Lanka, Nepal and Bangladesh.
• It plans to expand its export operations of Indian-manufactured CVs to markets in West
Asia, South Asia and Africa.
• In fiscal 2014, this joint venture developed its Pro series. It plans to export Pro 1000 and
Pro 3000 series in the first phase, and Pro 6000 and Pro 8000 series in the second phase.
• The Pro 6000 series is already being sold in Thailand under the UD brand by Volvo. With
this expansion, the company plans on increasing its export proportion to 15% over next five
years. The Volvo tie-up also helps Eicher garner growth opportunities from outside India.
• Volvo has started to export Euro-VI compliant buses to Spain and France. The company
also exports to South Africa, South Asia and the Middle East.
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Mahindra & Mahindra
• M&M exports small commercial vehicles and pick-ups to over 40 countries in Europe,
Africa, South America, South Asia and the Middle East.
• The former joint venture between Navistar and M&M, Mahindra Navistar Automotive, had
also begun exporting HCVs to South Africa.
• This has been continued by M&M, which renamed its CV division Mahindra Trucks and
Buses Ltd (MTBL) after the dissolution of the joint venture, and has subsequently merged
MTBL with M&M. Mahindra & Mahindra now has a separate division for heavy trucks and
buses (Mahindra Truck and Bus Division).
• Pick-ups exported other than the Bolero series were Maximmo and Jeeto.

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Daimler India Commercial Vehicles
• Daimler is using its Indian operations as a base for exports to markets in Africa and
Southeast Asia.
• Daimler India Commercial Vehicles manufactures trucks for exports to growing markets,
working with its Japanese subsidiary, Mitsubishi Fuso Truck, and Bus Corp and
BharatBenz.
• In 2013, Daimler's plant in Chennai, India, began manufacturing Fuso vehicles for sale in
select export markets in Southeast Asia and Africa .
• Its export markets currently include Indonesia, Kenya, Sri Lanka, Zambia, Tanzania,
Zimbabwe, Bangladesh and Brunei.

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 Costs and Profitability

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Fluctuations in raw material costs have a direct bearing on profitability

• Raw material cost makes up the largest cost component for commercial vehicle (CV)
manufacturers, constituting ~70% of net sales.
• Steel and pig iron are the major raw materials in production, together comprising 90-95% of
the total weight of a CV.
• However, in value terms, the share of pig iron and steel is 75%, and that of rubber (for tyres)
is 15-20%.
• Hence, volatility in the prices of these three major inputs affects players' profitability.

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Raw material break-up by weight

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Source: Company Reports

Raw material break-up by value (2018-19 estimate)

• Potential impact on margins due to higher input costs of 50 bps to be offset by ~2-3%
price hikes in H2 FY21

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Source: SIAM, Crisil Research
Basic raw material cost trend for CVs versus operating margin

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Source: SIAM, Crisil Research
Higher prices of iron and steel to limit reduction in basic raw material cost
in FY21
Trend in prices of major commodities impacting BRMI (in ‘000 Rs)

• Steel price and iron prices are expected to increase by ~9-11% in fiscal 2021 vs.
• an estimated fall of ~12% and ~6% in fiscal 2020 and then remain high in fiscal 2022.
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Source: SIAM, Crisil Research
Operating margin of CV businesses of players to remain under pressure

• Price hikes taken by OEMs in H2FY21 to offset the impact of raw material price rise.
• Capacity utilization improves on a sequential basis aiding margins.

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Lower capacity utilisation and increase in raw material prices to impact
Profitability
• The EBITDA margin of commercial vehicle (CV) manufacturers in the set - Tata Motors
(standalone) and Ashok Leyland – has oscillated over the past few years.
• Revenue of our sample set of CV manufacturers (Tata Motors and Ashok Leyland) is
expected to fall by ~10-15% in fiscal 2021 due to ~18-23% lower CV volumes and ~65-
75% higher Cars and UV volume (gets added due to passenger vehicle division of Tata
Motors).
• Price expected to have risen due to estimated ~10-15% BS-VI price hike undertaken by
OEMs but realisation to be low due to steeper fall in sales of higher-priced MHCVs as well
as increase in contribution of lower-priced Cars and UVs.
• Operating
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margins for the sample set is expected to improve by ~10-60 bps in fiscal 2021
aided by significant growth in Cars & UVs volumes.
Lower capacity utilisation and increase in raw material prices to impact
Profitability
• In fact, operating margin of the CV businesses is expected to fall by 80-120 bps in fiscal
2021 but higher sales from the PV segment has improved operating margin of our sample
set.
• Potential impact on margins due to higher input costs of 50 bps offset by ~2-3% price hikes
in H2 FY21
• Post fiscal 2022, revival in volumes to aid margins driven by higher capacity utilization as
well as cost reduction measures implemented by players in fiscal 2021.

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Fixed and Variable cost head for a CV manufacturer

• A CV manufacturer typically has fixed cost components at ~10-15%.

• With low sales seen in fiscal 2021, the fixed cost per vehicle sold becomes higher which
impacts
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margins.
Source: SIAM, Crisil Research
CV industry to barely achieve operational breakeven in fiscal 2021
• The CV industry has been plagued by low utilization levels and over capacity with
additions of fresh capacities post fiscal 2010 and the subsequent slowdown in fiscal 2013.
• Because of this over capacity OEMs have been forced to compete with a higher intensity
to gain market share leading to elongated period of high discounts.
• Even during the BS-IV transition in FY18, BS-IV vehicles were initially being sold at
BS-III prices.
• However, post BS-VI transition, OEMs have not absorbed BS-VI price hike; discount
levels too have reduced. Discounts are expected to resume only in late FY21 post demand
revival.

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CV industry to barely achieve operational breakeven in fiscal 2021

• Capacity utilisation for CV volumes of the top two OEMs are expected to fall to ~35-37%
in fiscal 2021 while the current expected operational breakeven capacity utilization being
~35-40% for the sample set.
• Thus, CV businesses of the two OEMs combined in our sample set may able to marginally
achieve breakeven operationally in FY21.
• In fiscal 2022, higher volumes to lead to improvement in capacity utilisation at ~47-52%
levels and subsequently, higher margins.

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Operating margin vs. capacity utilisation

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Source: SIAM, Crisil Research
Other financial indicators
• RoCE to improve over in fiscal 2021 over fiscal 2020 The capacity utilisation of CV
volumes the top four players - Tata Motors (standalone), Ashok Leyland, Volvo Eicher
Commercial Vehicles (VECV), and Mahindra & Mahindra - which was at ~77% in fiscal
2019, is projected to have fallen to ~50-52% in fiscal 2020 and drop further to ~39-41% in
fiscal 2021.
• OEMs have already incurred capital expenditure for the BS-VI transition.
• OEMs had earlier anticipated demand to be muted in FY21 (owing to increase in vehicle
prices) because of which they had refrained from any major capacity expansion in FY20
and FY21.
• Now, with CV sales tumbling in FY20 and FY21, OEMs are expected to delay any
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capacity expansion further.
Other financial indicators
• However, few OEMs with over 90% utilization levels on FY19 had begun setting up
manufacturing units in fiscal 2020 before the slump in demand.
• Moreover, capital expenditure is expected to have continued for electric mobility in FY20
considering the sanctioned STU orders for FAME-II.
• Capital expenditure to fall from an estimated Rs. 22 billion in fiscal 2019 to lower levels in
fiscal 2021.
• RoCE is expected to improve in fiscal 2021 as margins are expected to rise marginally due
to higher Cars & UVs volumes as well as lower than anticipated decline in LCV volumes.

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RoCE to improve in fiscal 2021 due to slight improvement in margins

101
Source: SIAM, Crisil Research
Asset turnover to also dip in FY21

• Asset turnover, i.e. net sales/average gross block, fell from ~2.2 times in fiscal 2019 to
~1.3 times in fiscal 2020 and expects it to decline further to ~1.1-1.3 times in fiscal 2021
on account of lower sales.
• With improvement in sales in fiscal 2022, asset turnover expected to improve ~1-1.5
times in fiscal 2022.

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