Will GST help drive truck demand in India?

Key highlights:

• GST seems to have had a positive impact on new truck demand
• Travel time which has reduced by about 20-25% post GST
• Average daily distance traveled has jumped from 225 km per day to 300-325 km per day

The concern of the impact on the medium and heavy commercial vehicle (MHCV) segment due to the goods and service tax (GST) seems to have been averted. In fact, GST seems to have had a positive impact on new truck demand and has positively impacted replacement demand, according to automobile analysts Chirag Shah and Karthik Subramaniam in an Edelweiss Securities report.

GST has pushed new truck demand due to efficiency gains in the travel time which has reduced by about 20-25% post GST. The Ministry of Road Transport and Highways recently stated that the average travel time has reduced by about 20-25% in the GST era as the time taken by trucks in the border check post between State borders has been eliminated.

As a result, the average daily distance traveled has jumped from 225 km per day to 300-325 km per day. The more distances covered by these truck fleets means more business for the companies, leading to them expanding their fleet to cater to higher demand.

The analysts also say that there is a significant cost savings from upgrading to a new fleet.

“Our analysis indicates that higher average speeds and mileage could lead to sharp increase in net income,” the said.

The report states that if fleet operators used to earn a revenue of Rs 10.51 lakh in pre-GST ear, now under post-GST era those revenues would double to Rs 23.12 lakh.

This would be possible as the trucks would be able to more amount of trips, higher freight rates and higher load capacity of new trucks.

The report further said that the replacement demand would continue to shift to higher tonnage trucks.

“We believe, the favourable cost economics of a new and efficient fleet, coupled with structural drivers like ban on overloading and improving road conditions, will continue to drive the shift towards higher tonnage trucks,” the analysts added.

While used truck prices up to 5 years have seen a jump in prices post GST, those which are 10 years and above have seen their prices plummet.

According to Indian Foundation of Transport Research and Training (IFTRT), post GST, prices of used trucks (up to 5 years) have jumped sharply by about 25-30% as they are reasonably well maintained. On the other hand, prices of older trucks above 10 years have plummeted about 30-35%.

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