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Transcript of 16.Edelwiss MrAshotosh Goel[1]
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8/6/2019 16.Edelwiss MrAshotosh Goel[1]
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S T R I C T L Y P R I V A T E A N D C O N F I D E N T I A L
India: Commercial vehicles
Demand drivers and forecasting
Ashutosh Goel
Vice President, Edelweiss
+91-22-2286 4287
SIAM Conc lave
Look ing ahead
Apr i l 2, 2008
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Contents
Freight market Overview
Goods M&HCVs - Demand cycles
Demand drivers
Issues in demand estimation
Forecasting methodology
Outlook 2008-09
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Freight market - Overview
Overall freight market is about 1500 BTKM
Railways and roads together account for over 95% of freight transportation
Railways overall share of freight is at about 25-30%
After losing share for decades, has gained a little in last 1-2 years
Railways share is higher in bulk commodities such as coal (60%),foodgrains, ores and minerals (60%), cement (40%), iron and steel (35%),
fertilisers (65%).
In discreet manufacturing - capital goods, consumer goods, etc. roadtransport has a distinct advantage, in terms of flexibility, door-to-doordelivery, predictable delivery schedules, and so on.
In agricultural goods for short distance transport (e.g. sugarcane)
and perishables (fruits and vegetables), road transport has nearmonopoly.
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Goods commercial vehicles Demand cycles
1993-1996 boom followed by 2 years of intense pain
Recent times have been rather benign
2001-2006 boom caught everybody by surprise due to its longevity
Industry has escaped with mild shocks in 2005 and 2007
Trend demand growth is generally been in the range of 8% p.a.
Seldom anywhere close to it; makes things difficult
CAGR from peak to peak is 7.5%, bottom to peak is 20%
What causes the volatility?M&HCVs (goods)-domestic sales growth
-60.0
-45.0
-30.0
-15.0
0.0
15.0
30.0
45.0
60.0
(%)
M&HCVs (goods)- domestic sales grow th 19.8 41.9 34.7 21.4 -46.9 -9.7 41.4 -28.9 29.3 27.7 43.6 28.9 3.4 37.0 -8.2
1993-
94
1994-
95
1995-
96
1996-
97
1997-
98
1998-
99
1999-
00
2000-
01
2001-
02
2002-
03
2003-
04
2004-
05
2005-
06
2006-
07
2007-
08
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Commercial vehicles - Demand drivers
Freight availability - industrial production
While the linkage is obvious, CV demand has shown more volatilitythan industrial cycle
Std Dev of IIP growth is about 3%; of MHCV sales growth is ~25%
Interest rates and credit availability
Profitability of transporters
Freight rates
Fuel prices and other costs
Road infrastructure
Competitiveness and market share vis--vis Railways
Replacement demand
Regulatory changes (entry norms, road worthiness, emission norms)
End-of-Life scrappage (is there anything like this, no data available)
However, in the ultimate analysis, CV sales growth is about freight availability
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Commercial vehicles Forecasting approach and issues
Traditionally, demand forecasts for commercial vehicles are based onestimating and forecasting total freight market in billion tonne kilometer(BTKM)
Unit CV demand = (BTKMn BTKMn-1)/(Avg payload x kilometers run)
Key issues
Lack of reliable and comprehensive data on fleet size and operations,freight generated, lead distances, etc.
The Carriage by Road Act, 2007 should help once implemented
Overloading can play havoc with any forecast
Fragmented ownership causes demand volatility outside offundamentals
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CV demand exploring second order linkage with industrial production
Hypothesis CV sales vary with the changein industrial growth rate, and not justgrowth rate; in other words, acceleration or decelerationin growth
Explanatory variable absolute change in the index of industrial production (IIP)
Manufacturing componentCausal linkage absolute change in industrial growth is a very good proxy forincrementalfreight generated which in turn generates new M&HCV sales
For all its simplicity, the model explains the volatility in sales growth extremelywell
y = 8986.4x + 32063.8
R2 = 0.9
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0
Change in IIP-Mfg (level)
M
&HCVsales
Issues
To incorporate mining index
Uses unit sales and ignores tonnage
However, the average GVW has
increased only 15% in 6 yearsAgriculture commodities
Capacity utilisation and overloading - ?
Railway market share
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M&HCV demand Forecasts for 2008-09
Scenario 1 Mfg IIP slows down further by 150bps to 8.0%
M&HCV sales growth minus 6.8%
Scenario 2 Mfg IIP slows down moderately by 50 bps to 9.0%
Growth 3.3%
Scenario 3 Mfg IIP stabilises at current 9.5%
Growth 8.3%
Scenario 4 Mfg IIP accelerates back to 10%
Growth 13.4%
Positive support from
Mining, construction, infrastructure segments tippers, mixers, etc. Dealer feedback across west, east and south India share of these product segments
has doubled in 2007-08 over 2006-07
Impetus to industrial growth from fiscal stimulus provided by Budget and SPC
Negatives and drags
Continued slippage on overloading
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Commercial vehicles Channel feedback
Dealers
Booming construction sector to providecushion against a soft cargo segment
Transporters
Freight availability is fairly good; profitabilityis reasonable, though down from 2006-07
Freight rates are steady to graduallyimproving
Implementation of overloading ban ispatchy and slipping in certain rogue states;while in some it is as stringent as before
Truck freight rates
Freight r ates
1.00
1.10
1.20
1.30
1.40
1.50
1.60
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
Rs/tkm
2005-06 2006-07 2007-08
Source: Business Line
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Fleet utilisation Demand vs supply
Fleet utilisation levels have been fairly steady in the past 3-4 years reasonfor lower volatility in demand, and no severe dent in transporter viability
Reflects consolidation in transport industry (in market operations though notin ownership) and more informed buying decisions
60
80
100
120
140
FY92
FY93
FY94
FY95
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
Index (Flee t) Index (Freight)
Growth in fleet vs. freight
Note: Fleet index based on cumulative payload; Freight index based on agricultureand industrial GDPSource: Edelweiss research
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Commercial vehicles: Long term forecast
Medium to Long term trend growth rate 8-9% per annum for M&HCV;slightly lower than industrial growth due to higher unit sizes
Demand drivers
Industrial growth: expected to stabilise at 9-10% p.a. over medium to
long termFleet renewal/upgradation driven by regulatory changes:
Overloading (further clampdown), emission norms (Euro III/IV in 2010),age/roadworthiness (spreading across cities)
Heavy gets heavier M&HCV sales
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
FY02 FY03 FY04 FY05 FY06 FY07
(Nos.)
Medium trucks Heavy trucks
Light gets Lighter LCV sales
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
FY02 FY03 FY04 FY05 FY06 FY07
(Nos.)
Light trucks Small trucks
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THANK YOU!
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Annexure
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Freight Rail and road market share
Share of road and railways in total BTKM
Year Road BTKM % share of railways in total BTKM
1995-96 510.1 33.1
1996-97 542.7 32.3
1997-98 573.8 31.6
1998-99 580.4 31.0
1999-00 669.5 29.6
2000-01 700.4 29.0
2001-02 755.3 29.0
2002-03 824.8 28.6
2003-04 926.4 27.8
2004-05 1043.7 27.2
2005-06 1167.7 27.0
Source: CRISIL Research
Railways share of commodities transport
Year Coal Iron Ore Cement Foodgrains Fertilizers POL Iron & Steel
1997-98 66.4 69.7 44.9 13.5 74.6 37.5 44.0
1998-99 64.0 65.6 41.8 13.4 75.8 37.7 40.9
1999-00 65.7 67.0 43.4 14.8 78.6 36.0 39.72000-01 66.9 71.7 43.1 13.5 74.2 34.5 n.a.
2001-02 66.0 70.8 41.2 15.3 74.3 33.3 n.a.
2002-03 64.7 68.1 39.8 25.9 75.8 30.7 n.a.
2003-04 65.8 58.2 39.9 20.7 67.8 25.9 n.a.
Source: Ministry of Railways
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Freight market BTKM estimation
Source: Edelweiss research
Freight
Commodities Production (mn tonnes) Avg lead (km) BTKM % to total
Agricultural
Foodgrains and commerci 235 1,400 329 21.9
Sugarcane 257 300 77 5.1
Sugar 25 300 8 0.5
CottonFruits & Vegetables and o 178 300 53 3.6
Milk 100 200 20 1.3
Industrial
Fertiliser 25 850 21 1.4
Cement 150 450 68 4.5
Project goods 50 700 35.0 2.3
Minerals
Coal 400 600 240 16.0
Iron ore 50 400 20 1.3
Petro products 150 600 90 6.0
Bauxite 50 300 15 1.0
Metals
Steel, aluminium, copper, zi 40 900 36 2.4
Imports 150 800 120 8.0
Total 1,866 1,132 BTKM Avg lead 606.6 KM
Total estimated 1,500
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