Even if the lockdown is lifted, auto firms say it would take a couple of months to streamline operations again
Since early 2018, the Nifty Auto index is now down by more than 60%, compared to a 34% fall in the Nifty 500 index during the same period
The lockdown of operations by most auto original equipment manufacturers and component suppliers crashes hopes of any near-term recovery in sales. The industry was already facing multiple headwinds, and the lockdown has made things far worse.
Since early 2018, the Nifty Auto index is now down by more than 60%, compared to a 34% fall in the Nifty 500 index during the same period.
While the lockdown has been announced till the month-end, experts and industry insiders say it could be extended by a few more weeks.
“Due to the ongoing uncertain environment amid Covid-19- and BS-VI transition-led slowdown, we expect March 2020 sales to be impacted largely with high double-digit year-on-year decline. This would result in overall subdued sales for 4QFY20 (March quarter). Going forward we expect similar slowdown to continue for next 2-3 months. It may see improvement only after 1HFY21E," said Mitul Shah, vice president (research) at Reliance Securities Ltd.
Within the auto universe, two-wheeler and commercial vehicle makers, which were sitting on relatively higher inventory levels, will be hit more than manufacturers of passenger vehicles.
Meanwhile, with overseas markets also badly hit by the impact of the coronavirus, auto exports, too, will take a hit.
Tata Motors Ltd—which has its profits accruing primarily from UK-based subsidiary Jaguar Land Rover Ltd—is facing a double whammy, with plunging car sales across the globe and the suspension of its UK operations. Besides, its commercial vehicle sales are under also pressure in the domestic market.
In this backdrop, benign raw material and crude oil prices are of little value. After all, sales are at a virtual standstill. Even if the lockdown is lifted, auto companies have said that it would take a couple of months to streamline operations again.
Besides, the fear of Covid-19 will keep customers away from showrooms for a while. Further, as job losses mount and with many sectors in the economy suffering losses, consumer spends are bound to be hit. Hence, demand and sales revival is unlikely in the near term.
Of course, analysts say it is hard to forecast what lies ahead. Investors in automakers can only wait and hope for the storm to pass.