We will have a much clearer picture towards the end of December as to what is the effect on the business in the short-term
Long-term this is a great shot in the arm for companies like ourselves who are organized and have a national presence
Impact of demonetization on our business will be very small
Bigger companies will face some of the demand erosion
The business will come to the middle, the mid-sized retail companies will continue to grow, very small ones will have a very difficult environment, the big ones will see some decline in their product offering because of the liquidity being affected.
Too early to assess the impact of de-monetisation but NBFC’s (financing commercial vehicles), logistics, CV manufacturers might get impacted in near term.
Cash collections of commercial vehicle financiers has dwindled over last 10 days. Some leading NBFC’s have 30-60% of cash collection. Small fleet operators and LCV owners usually pay in terms of cash.
Cash crunch might ease, but it might be followed by slowdown and in turn might impact viability of fleet operators and loan servicing. Delinquency levels may go up in near term.
Impact on operators more in Tier II/III than in metros. Demand for trucks has fallen by 15-30%, owing to high reliance on cash for the daily operations.
Small fleet operators/Single LCV owners are most hit. Unavailability of cash to meet trip expenses has pushed this sector to edge.
Organized fleet operators are least hit, due to their cashless system, except for certain expenses which cannot be met by online payment
Commercial Vehicle Sales:
Demonetisation might reduce commercial vehicle sales. Fleet owners might no go for vehicle addition or replacement owing to liquidity crunch. 90% of the CV sales in India rely on external financing.
Weak industrial activity, uncertainty of impact of GST have been the major factors for declining trend in commercial vehicles (especially heavy commercial vehicles) sales. The trend might have reversed from April 2017 due to application of BS-IV emission and end of the fiscal year.
Inventory levels stands at 4-6 weeks, which might increase in coming weeks. OEMs would continue to dispatch vehicles already produced, but realign inventory based on future demand.
Growth forecast revised for M&HCV from 12-13% earlier to 5-8%. In Sept 2016. LCV’s also might see a decline in sales.
Bus segment is least impacted due to higher sales to institutional clients. Typically orders are placed 6-12 months in advance.
Mr. Shekhar Bajaj, Chairman and Managing Directorsaid:
More fear in those people dealing with cash. Therefore likelihood of more people coming in the official channel is likely to go up. This means dealers who were not dealing with us before since they wanted to deal without any bill, will be ready to buy from us . We call this FMCG model for consumer durable industry.
People depending on no bill type of people will lose out
Introduced channel financing to all dealers which will increase substantially over the next 3-6 months.
No impact on consumer products business. Cash flow is made a little difficult for short term.
We are not a luxury item which customers are going to worry about
Might impact smaller markets where banking is very far in rural areas
This demonetization is an issue with the illegitimate money keepers and so we don’t have to worry at all
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