Do you think the muted sales growth can be attributed to the high base effect and the deferred purchases during the elections?
I believe so. There was a high base effect in the fourth quarter. The industry de-grew marginally by about 4%. We have been flattish. We have gained market share. For us, it has been a good quarter in terms of our performance. You are correct that beside the high base effect, there was also a little bit of uncertainty on the election side. We must also remember that the impact of the new axle load norms was being felt a little bit.
Overall, that is why this quarter’s volumes are a tad low. But overall, this industry has grown by 15% over last year. This is possibly the fifth or sixth year since the industry has been growing consistently and posting very healthy growth rates.
Experts are saying that the volume growth is expected to recover in FY20, but we could see a decline coming in a post that. Is it safe to say that we are nearing the peak of the domestic CV cycle? Is it already in the fifth year of its upcycle now?
I do not believe so because of the following factors; first, I am not going to profess to be a great economist, but if I look at some of the macros; one of the challenges is that the supply chain cost as a percentage to the GDP, is one of the highest in the world. You are at about 13%, 13.5%, and globally, the standards are around 10%. There is a lot of costs that has to be taken out from supply chain efficiencies for the country.
I am not talking about the company, and I am not talking about a sector. I am talking about the country because GDP growth can be driven much better if supply chain inefficiencies are reduced. For that to happen, what is essential is to have better roads and faster turnaround times. The government is stepping up the investment inroads. Why would the government be laying 21-25 km roads a day? It is evident that the commercial vehicle sector, be it trucks or buses, will benefit from the heavy investment that is happening in highways and infrastructure, this is one.
The second point I would want to share with you is if you look at the penetration of commercial vehicles per million of population, the global standards are at something like 1,000 to 1,100 commercial vehicles per million of population every year. We are far below it and India is regarded as the highest growth economy over the next 10 years.
If you were to look at this overall scenario at a very macro level, I would say there is a lot of good that is holding forth for this sector. This is one part.
The second part is I do not think the industry has peaked at all. It has been growing, we have not seen any major cycles coming in that is because I personally believe that this era of feasting and fasting are over. You are going to see sudden bursts of growth and then one or two quarters of de-growth or maybe flatness and then again growing. People are becoming extremely nimble footed about their investments. Data is available very quickly today, it is open and it is a global economy today. So people are able to understand what the demand is going to be. They place orders on trucks and other commercial vehicles based on the demand that they foresee.