Structure of the Indian CV Industry

ICRA Rating Feature

The CV industry in India is split between the LCV and M&HCV segments, with the classification being based on Gross Vehicle Weight (GVW). According to industry norms, vehicles with GVW less than 7.5 tonne are classified as LCVs, while the ones heavier than these are termed MCVs/ HCVs. In terms of usage, CVs may be categorised as goods carriers and passenger carriers. Among passenger carriers in less than 7.5 tonne GVW segment, those with sitting capacity up to 13 are categorised as utility vehicles (or UVs, and not part of LCVs), while those with capacity over 13 passengers are grouped as LCVs. At present, the overall CV industry is split between the LCV and M&HCV segments roughly in the ratio of 45:55. Around 13% of the vehicles sold in the LCV as well as the M&HCV segments are passenger carriers. Besides LCVs and M&HCVs, three-wheelers that can carry load up to 1.5 tonnes are also an important mode of goods transport. These vehicles, with better maneuverability through traffic, are preferred for last-mile distribution. However, the sub 1T LCV segment has given stiff competition to the three-wheeler segment owing to their inherent advantages.

Ownership of trucks in India remains highly fragmented, with most of the larger transport companies hiring trucks from small truck owners. Currently, the larger fleet operators are increasing their share of the corporate/wholesale business, while the smaller ones are providing the incremental "capacity on hire" to the larger operators. The smaller fleet operators are also able to better manage issues like overloading and unofficial payments at check posts, which have become an integral part of the road transportation business in India. However, with the logistics industry getting organised on the prompt of higher outsourcing of logistics by manufacturing industries and the tighter implementation of overloading restrictions, a trend of consolidation appears to be emerging in the organised segment of the road transport industry. Nevertheless, the industry is expected to remain largely unorganised in the medium term.

Over the last two decades, both the LCV and the M&HCV segments have grown at similar rates, although volume growth in the M&HCV segment has been more volatile. Growth in both the LCV and M&HCV segments is linked to economic activity and the level of infrastructure development, and exhibits cyclically. The truck segment of the business (M&HCV goods carriers) is however, prone to lumpy capacity addition at the fleet operator level and hence, experiences more severe demand shocks. The LCV segment, though cyclical, usually exhibits steadier demand patterns on account of the relatively wider usage range.

Most market segments of the Indian CV industry currently operate as duopolies, with the top two players together accounting for a market share of over 85%. The segment-wise market shares of the leading players are presented in the following table:

 
In the LCV segment, Tata Motors and M&M enjoy a dominant market share. Force Motors has a strong presence in the passenger LCV segment. Piaggio is a relatively new entrant in the goods LCV segment. Tata Motors and Ashok Leyland, followed by Eicher Motors, dominate the M&HCV segment. Ashok Leyland is, particularly, strong in the passenger M&HCV segment and has traditionally enjoyed a slightly higher market share over Tata Motors.