The signs from the economic data in India may be ambiguous and prone to seesaw but here is a glimmer of hope. Manufacturers, bankers and auto financers believe that after 2 years of an uphill trundle, the commercial vehicle business in the country is shifting gears.
Commercial vehicle manufacturers like Tata Motors , M&M , Volvo, Eicher and Ashok Leyland have been in a truckload of trouble for the last 24 months but the pain seems to be easing.
CV sales remained weak in April as M&M reported an 11 percent drop in total volumes, Tata Motors saw Heavy Commercial Vehicle sales slip 9 percent and Ashok Leyland's total volumes dropped over 20 percent.
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However, the experts are looking beyond the overall numbers. Their belief that a recovery is underway is predicted on incremental evidence.
Freight rates have seen a sharp 8-10 percent spike in the fourth quarter of FY14 and transport enquires have improved.
An immediate trigger for the recovery has been the lifting of the ban on mining in Goa and Karnataka.
Sanjiv Bajaj, Vice Chairman, Bajaj Finance says, "In a very limited way, the construction equipment financing that we do, also includes small trucks that are used in mines and other areas. Here, we have seen some uptick but, only for this limited segment and that too in the last few months."
"There is no excess capacity now in the system and with the few areas that were dampened for instance mining area, its ban being lifted, we see increase in CV sales and therefore, increase in financing", said Romesh Sobti, MD & CEO, IndusInd Bank.
Both financiers and bankers say the next 12 months will see the recovery shift to a higher gear.
"It may take another quarter or so to start showing in our monthly disbursement but going forward, over a 12 months period, certainly we see the second half of the year much better than the second half of previous year", adds Sobti.
Bajaj feels the underlying vehicle sales ends up mimicking what we do in financing but yes, the bottom has been reached. However, it is hope at this point. The next two-three-four months will point out whether this is real or not.
Some detractors have pointed out that the non-performing assets in this segment have actually shown an uptick in the fourth quarter of FY14. Nevertheless, bankers insist the worst is over.
The CV book, given the conditions in the market, showed about 8- 10 basis point increase in the gross net NPAs but we are at the bottom of the market. Sobti does not foresee any further worsening in the quality.
Sanjiv Bajaj agrees, saying the loan defaults in the first three quarters of FY14 were also negligible to begin with. The recovery in the commercial vehicle segment may be slow and not very noticeable but it exists. In addition, experts say one big factor that will help keep the gears engaged is a stable government with decisive and clear policies.
Tata Motors stock price
On May 09, 2014, at 11:12 hrs Tata Motors was quoting at Rs 422.50, up Rs 0.35, or 0.08 percent. The 52-week high of the share was Rs 437.70 and the 52-week low was Rs 263.10.
The company's trailing 12-month (TTM) EPS was at Rs 2.61 per share as per the quarter ended December 2013. The stock's price-to-earnings (P/E) ratio was 161.88. The latest book value of the company is Rs 59.47 per share. At current value, the price-to-book value of the company is 7.10.
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