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MOSL: ASHOK LEYLAND (Buy)-M&HCV axle load proposed to be increased up to 25%

ASHOK LEYLAND: M&HCV axle load proposed to be increased up to 25%; Is it precursor to stricter norms on overloading?

(AL IN, Mkt Cap USD5.4b, CMP INR126, TP INR159, 26% Upside, Buy)

 

According to media articles, the Indian government is expected to announce a hike in the axle load capacity for M&HCV (trucks and tractor trailers >16tons) by up to 25%. While we await further details on the same, our interaction with industry participants indicates a limited impact on M&HCV demand due to prevalence of overloading. 

 Proposed norms

• According to media articles, the government is set to hike the load carrying capacity for M&HCV trucks and tractor trailers by up to 25%. The new norms related to the same are likely to be announced tomorrow.
• The government is likely to increase the gross vehicle weight (GVW) from 16.2 to 19 tons for a two-axle truck, from 25 to 28.5 tons for a three-axle truck, from 37 to 43.5 tons for a five-axle truck and from 44 to 49 tons for a tractor trailer with five axles.
• The new rules, if implemented, will be applicable prospectively.

 

Likely implications

• The new norms could improve the profitability of transporters, as the load increase will facilitate higher GVW, and thus, higher loading capability.
• In intra-state transportation, where overloading is already prevalent, CV demand would not be materially impacted by the hike in load carrying capacity.
• We note that the overloading ban is prevalent in inter-state transportation. Thus, the new norms could have a negative impact on CV demand as the increase in vehicle load capacity will enhance truckload efficiencies.
• Further, the lack of clarity around this norm may lead to deferment in buying decisions in the near term.