2 min read.Updated: 14 Oct 2020, 09:56 PM ISTAmit Panday
The automotive industry, which continues to battle the economic slowdown for close to two years, has seen lowest sales this year over the past two decades on the back of covid-19 led disruptions
The passenger vehicle (PV) industry is expected to register a year-on-year decline of upto 25% this fiscal as the trickle down impact of expected GDP decline of 11% in FY2021, credit ratings agency Icra Ltd said on Wednesday.
The automotive industry, which continues to battle the economic slowdown for close to two years, has seen lowest sales this year over the past two decades on the back of covid-19 led disruptions.
“The GDP growth rate and overall consumer sentiments are currently at historic lows and this recessionary environment has resulted in purchase deferrals," Icra said in a note.
As a result of two years of consecutive decline in sales (18% in FY20 and upto 25% in FY21), the PV industry is likely to see overall production capacity utilisation to fall below 45% this fiscal from about 55% in FY2020, the credit ratings agency said.
“We expect capex cut by 35-40% during FY2021-FY2022 and incremental investments will be primarily towards new product development and platform improvisation," it said.
However, it estimates that the PV industry could record strong growth of more than 15% in FY2022, albeit on the low base of FY21.
Meanwhile, several passenger vehicle and two-wheeler manufacturers have already returned to pre-covid-19 wholesale volumes in September.
According to Ashish Modani, vice president at Icra, the rural market will remain the key driver of volumes in FY21 thereby benefiting the entry-level cars and utility vehicles (UVs).
He, however, warned that there is an increased risk aversion in retail as well as wholesale financing.
Icra also estimated that the commercial vehicle (CV) industry would decline 27% YoY this fiscal as it continues to face several challenges including subdued freight availability, curtailed movement of goods, over capacity, lack of financing options, mining ban and increased vehicle prices of upto 15% under BSVI emission norms.
While the medium and heavy commercial vehicle (MHCV) segment (including buses) is expected to see a drop of 40% this year, the light commercial vehicles (LCVs) would record a decline of 17&-20%, it said.
As against monthly sales of more than 80,000 units reported prior to the pandemic, the CV retails are still at less than 40,000 units in September despite four months of sequential recovery in wholesales.
The credit ratings agency has also revised its forecast for the tractor segment from 2%-4% YoY growth to 9% in FY21 on robust demand led by increased cash flow in the rural economy.