Tata Motors on Thursday said that it will hike the price of its commercial vehicles by 2%, effect from April 2024. The company has attributed the price hike to offset the residual impact of the past input costs.

"While the price increase will vary as per individual model and variant, it will be applicable across the entire range of commercial vehicles," says the country's largest automobile manufacturer in an exchange filing today.

This is the second time in the current fiscal year that the commercial vehicle manufacturer has hiked prices. Earlier in September last year, the company hiked commercial vehicle prices by 3%.  

The development comes days after the automobile major demerged its commercial vehicle and passenger vehicle business earlier this month. The demerger plan, which is awaiting shareholders’ approval, will constitute two separate listed companies—one housing its commercial vehicles business and the other constituting passenger vehicle business including electric vehicles (EVs) and British marquee Jaguar Land Rover (JLR).

According to Moody's Investors Service, the commercial vehicle business will generate ample cash flow for Tata Motors.

"While the demerger would result in TML's remaining operations comprising only CVs, the company's strong foothold with about 40% share in India's growing CV industry and the business' demonstrated ability in generating large free cash flow through industry cycles will support its credit profile," says Kaustubh Chaubal a Moody's Senior Vice President.

"With unit sales of less than 0.5 million, revenues of around $9 billion and EBITA margin at about 8%, TML's CV operations will likely generate ample free cash flow with credit metrics substantially strong for a Ba3 CFR," adds Chaubal who is also Moody's lead analyst on TML.

Looking ahead, the CV unit expects demand to improve in Q4FY24 on the government’s thrust on infra development, promising growth outlook of the economy and its demand-pull initiatives.

Girish Wagh, executive director of Tata Motors Ltd, says the CV industry witnessed a pause in sales growth in Q3FY24 on account of the higher base effect, the impact of elections held across five states, and the post-festive seasonal slowdown in rural consumption.

Rating agency ICRA expects the volumes for the domestic commercial vehicle (CV) industry to remain muted through in the March quarter of FY24 as the base effect catches up in addition to a perceived pause in the infrastructural activities as the model code of conduct kicks in ahead of the General Elections. ICRA estimates the domestic CV industry volumes to register 2-5% YoY growth in volumes in FY2024. Subsequently, the industry’s sharp upcycle is expected to plateau in FY2025, with a decline of 4-7% in volumes.

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