The demand for CV vehicles has been on a roll given the
- government spending on infrastructure,
- greater replacement demand,
- fall out of GST led disruption
- stricter implementation of overloading norms
Why is this important
Coupled with the growth in the economy and a gradual shift towards higher tonnage vehicles (16t / 25t in favour off 31t / 37t) is leading to improved transport economics with cost of operations reduced on a per tonne-km basis. This has resulted in freight rates remaining relatively stagnant despite the recent spurt in oil prices.
The strong growth expectations of 20% in CV sales despite a higher base effect of FY18 implies significant pent up demand. We expect the outlook for the CV segment to remain robust over the next two years.
CV Stocks to be impacted positively
We expect the stocks of Ashok Leyland (CMP 155, MCap 45,385 crores, EV/EBITDA 12.4) and Tata Motors (CMP 324, MCap 93,593 crores, PE 8.3) to continue to do well going forward.