Apex court’s Bellary mining ban may affect truck sales

Industry News 2011-08-02 08:07:31
Sources : Livemint.com
Dated    : 1st August 2011
The Supreme Court’s ban on iron ore mining in Karnataka’s Bellary district will hurt truck sales, said analysts and some truck makers.Following the findings of a Lokayukta report on 29 July, the country’s apex court imposed a blanket ban on mining in the district. The ban impacts close to 100 mines in the region, which employ around 17,000-20,000 heavy trucks. These vehicles, which include tippers and other heavy duty lorries used in mining and transporting the ore, will now be idle, potentially impacting replacement demand.
“If the ban continues, on an annualised basis, it will dent the sales of medium and heavy duty commercial vehicles, in which tippers are positioned, by 2.5%, or 6000 units,” said Mahantesh Sabarad, analyst at Fortune Equity Brokers (India) Ltd.India sold 275,000 such vehicles in fiscal 2011, according to industry lobby Society of Indian Automobile Manufacturers (Siam).Volvo sells 1,100 high-end trucks a year, of which 300-400 are used by the iron ore segment, according to Somnath Bhattacharjee, president, Volvo Trucks India.
Almost 40% of these are employed in the Bellary region, while the rest are sold in Orissa and Goa, he said. Bellary accounts for one-third of the total iron ore mining in the country.Bhattacharjee expects a short-term impact on sales for the next two months. “In fact, we were already seeing a slowdown in demand from the iron ore segment after exports of iron ore were banned, he said. “Banning the entire mining activity will further have an impact.”Other truck makers said the Supreme Court ruling will have only a marginal impact.
“It’s not been a great market anyway,” said Rajive Saharia, executive director, marketing, at Ashok Leyland Ltd, the country’s second largest seller of trucks. “Our sales from the region is insignificant.”Sales, Saharia said, has been low since 2008 when mining was earlier banned. “We haven’t seen sales pick up back to the earlier levels as there have been surplus capacity.” 
A Tata Motors Ltd spokesman said the ban will not impact his firm. J. Shankar Srinivas, deputy general manager, marketing and communications, at Daimler Commercial Vehicles India Pvt. Ltd, which sells the Actros range of trucks in the mining segment, said his company has still to see the Supreme Court ruling, but “prima facie there’s no impact on an immediate basis.”
Analysts, however, maintain it will indeed slow the sales expansion. “It’s bad news in a bad market,” said Umesh Karne, analyst at brokerage Brics Securities Ltd, referring to the slowing sales of commercial vehicles.Sales of medium and heavy duty vehicles expanded 36.5% to 275,000 units in fiscal 2011. High interest rates of finance and diesel prices have slowed the momentum in fiscal 2012 and sales inched up merely 7.50% to 64,091 units in the three months to June, according to Siam. 
Typically diesel costs account for half of operating costs for a fleet operator.Karne said the ban will hit the replacement demand for tippers and trailers. “Even the illegal miners were using some vehicles for mining and transportation, It will hence slow the sales by 1.5%-2%,” he said.“There is bound to be some nervousness said S.P.Singh, senior fellow at transport research firm, Indian Foundation of Transport Research and Training.
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