Here’s Why Tata Motors Is Increasing Focus On Cargo Vehicles In India?

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As sales of its medium and heavy commercial vehicles (M&HCV) segment slows, Tata Motors (NYSE:TTM) is now focusing on cargo vehicles including dump trucks to drive growth in the domestic market. The company’s M&HCV segment grew by just 3% between April and August 2016, compared to the industry growth of 8.5%. During this period, sales of tippers grew by 40-42%. By betting on the higher demand for dump trucks, the company expects commercial vehicle sales to grow by 10-15% in fiscal year 2017. While the domestic market does not form a significant portion of Tata Motors’ valuation according to our estimates, the right product mix in India can allow the company to strengthen its position in the region and drive revenues in the longer term.

Infrastructure Development To Promote Growth

As the Indian government increases focus on roadbuilding with several national highway projects underway, dump trucks (there called “tippers”) are driving sales of the M&HCV segment.  With increasing momentum in the infrastructure, irrigation, mining and construction segments, Tata Motors believes that this vehicle segment will continue to grow. To tap into this trend, the company is increasing focus on “tippers” and cargo vehicles.  Its sales growth in the M&HCV segment remains lower than the industry and we believe modification of the product mix can lead to higher growth.

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Read :Tata Motor’s India Business Is Heading In A Positive Direction.

We believe Tata Motors is taking necessary steps to turnaround its business in India and South East Asia. While it is trying to revive its passenger cars segment through new launches, it is focusing on high growth vehicles in the M&HCV segment. The company is looking to increase market share in other Asian countries as well. Recently, Tata Motors launched a mini-truck in Vietnam which is being touted as an innovative cargo transport solution. The company is also looking to double its exports of commercial vehicles from India to provide a cushion against the cyclical nature of the domestic economy.

We believe Tata Motors’ turnaround plan for India is showing positive results. The company is tweaking its product offering in all segments, taking into account consumer preferences and potentially high growth vehicles. A focus on cargo vehicles and “tippers” in the M&HCV segment can boost growth and bring it in line with the industry growth numbers, driving revenues for the company.

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