Financing for used trucks is set to increase and double by FY25 as the scrappage policy of 15-year limit is expected to give a boost to the used truck market.
With a pick-up in sales volumes in the commercial vehicle (CV) industry, CV financing has bounced back. The used or pre-owned CV market is also witnessing stable growth on account of the increase in prices of new trucks and used CV’s multi-purpose usability, and this is expected to remain positive over the next 2-3 years. Post-axle load norms and BS-VI transition, commercial vehicle tonnage has moved up, making small road transport operators move to used commercial vehicles.
Replacement demand under the vehicle scrappage policy is expected to be a huge potential as the policy is seen generating incremental demand for used trucks over the next 2-3 years.
“Given the scrappage policy with a 15-year limit, used CV financing is expected to double by FY25,” according to the information in the latest annual report of Indostar Capital Finance Ltd, which is financing for the purchase of new and used trucks (up to 12 years).
Increased growth
The opportunity to expand disbursement in used CV has been on the rise due to increased growth in the segment. This is owing to the strength of the underlying demand drivers such as construction and infrastructure activity, growing demand for e-commerce and the continued thrust of the government on infrastructure development, which will provide further support to demand.
The used CV financing segment is largely dominated by NBFCs and this segment has been able to maintain stable growth supported by favourable factors. The leading players in this segment are Shriram Finance, Sundaram Finance, Cholamandalam Investment & Finance and Mahindra & Mahindra Financial Services among others.
Currently, 50-60 per cent of financing in the used CV segment is served by the unorganised sector. This share is projected to reduce in the future due to the scrappage policy as the organised sector is expected to gain more.
Indostar Capital pointed out that it is building capabilities, infrastructure, and processes become a pan-India company player pre-owned CV market and expects to grow its AUM (₹3,672 crore in CV space in FY23) manifold, considering the potential in the used CV space. The company has been focusing on tier-3 and tier-4 markets, a sweet spot for used truck financing.
‘Enhance penetration’
“We are capitalising on the growing opportunity in the used truck market and anticipate the CV loan book to grow manifold over the next few years. We plan to enhance our penetration by increasing our reach in smaller geographies and rural markets,” said Karthikeyan Srinivasan, CEO, Indostar Capital Finance Ltd.
As of March 31, 2022, the CV financing industry in India has AUM (Assets Under Management) of about ₹3.6-lakh crore, of which 42.3 per cent or ₹1.5-lakh crore is contributed by NBFCs. Banks accounted for 38.5 per cent share or ₹1.4-lakh crore, according to a CARE report.