After cars, it is the turn of CVs
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After cars, it is the turn of CVs

DaimlerChrysler, Hyundai and others have unveiled their plans to make a foray into the Indian commercial vehicles market.

india Updated: Mar 10, 2006 16:39 IST

After passenger cars, it is the turn of commercial vehicles (CV) to witness actions on the domestic Automotive terrain.

Lead international automotive majors such as DaimlerChrysler, Hyundai and others have unveiled their plans to make a foray into the Indian commercial vehicles market, said a special report of the Automotive Manufacturers Association of India.

Already, joint ventures (JVs) have been formed between International Truck and Engine Corporation, an American CV major, and Mahindra & Mahindra (M&M) and between MAN, a German CV major, and Force Motors.

Tata Motors has acquired Daewoo Commercial Vehicles Company of South Korea, thereby gaining access to the Chinese and Far East Asian markets, the report added. Also, Tatas will improve its design and manufacturing capabilities through its JV with Spanish bus and coach manufacturer Hispano Carrocera.

Ashok Leyland (ALL) has concluded a technology transfer agreement with IVECO, an Italian CV major, which also gives ALL access to Chinese and other Asian markets where IVECO has a distribution channel.

These developments signal the global aspirations of Indian truck majors and a realisation that they have to look outward to sustain high growth levels.

Backed by their balance sheet strengths, the report maintained that the CV majors have in the last three years significantly improved their operational and financial performance, resulting in a healthy improvement in their balance sheets.

Many of them have started implementing sizeable capital expenditure to increase capacity through a mix of internal accruals and debt.

Some of them, including Tata, ALL and M&M, have resorted to external borrowings or quasi-equity in the form of foreign-currency convertible bonds, taking advantage of their higher share prices attracting international investors.

Any moderate increase in debt levels of these majors is likely to have a modest impact on their credit profiles. These companies are expected to benefit from an expected sales volume increase over the medium term.

Though higher steel prices have been a key concern in the last two years, the CV industry has tackled this both by passing part of the costs on to customers and by optimising other cost (payroll) and treasury efficiencies.

Global steel prices are expected to remain firm due to robust infrastructure-driven demand from China (the Olympic Games are also a factor here), India and other emerging markets.

At the same time, rising steel prices will continue to put pressure on CV pricing, the Report said and pointed out that another concern could be a slight slowdown in the Indian economy, especially in view of the continued steady increases expected in the federal funds rate (a key short term interest rate) in the US, raised to 4.50 per cent in January. This is likely to bring upward pressure on interest rates in India and could serve to reduce GDP growth, notwithstanding continued good corporate performance.

First Published: Mar 10, 2006 16:39 IST