MUMBAI: Sales of passenger vehicle would decline 22-25% in FY21 to a decade low of around 26.5 lakh units, credit rating agency Crisil has said.
The rating agency made the forecast after analyzing eight passenger vehicle manufacturers that together account for about 80% of the industry volumes. The expected fall in FY21 sales would follow a 15% drop in PV volumes in FY20.
Despite the sharp decline for two consecutive years, Crisil said the credit quality of most passenger vehicle manufacturers would remain stable because of strong balance sheets and healthy liquidity.
“In some cases, support from the strong parent or group will help navigate the rough terrain,” the report pointed out.
According to the data compiled by the Society of Indian Automobile Manufacturers (Siam), total passenger vehicle sales, including exports, stood at 34.52 lakh units in FY20 as against 40.53 lakh units in FY19.
“The eight PV companies had about ₹50,000 crore of surplus liquidity as of March 2020, which will help them tide over these difficult times. Also, the average debt- to-Ebitda of these players is estimated at ~1.1 times at end of fiscal 2020,” said Aparna Kirubakaran, associate director, Crisil Ratings.
"This ratio is likely to go up, but remain adequate at close to 2 times by end of fiscal 2021, supported by pruning of capital spend by at least ~25-30%," she said.
Crisil said it assumes a sharp fall of 60% in the domestic wholesale volumes during the first two quarters of the ongoing fiscal. While most leading automakers reported nil domestic sales for April due to the nationwide lockdown, the industry resumed operations albeit in a staggered manner. Monthly volumes remained as low as 90% YoY.
Crisil expects the industry to see a revival in terms of 6-8% growth during Q3-Q4 on the back of improved rural demand.
“... ~15% drop in export volumes will lead to ~22-25% fall in overall sale volume in fiscal 2021,” it said.
“With muted income growth, discretionary spending will take a backseat this fiscal. Small PVs and used vehicles will find favour owing to better affordability. Also, given increasing awareness about social distancing, consumers may reduce, if not avoid, travel by public, pooled and shared transport in the short term. However the benefit from change in commuting-pattern will only partly offset the steep downturn,” said Anuj Sethi, Senior Director, Crisil Ratings.
As a result of the production loss during Q1 and muted demand through the ongoing fiscal, operating profitability of carmakers would remain under pressure, Crisil said in a note.
“PV makers will continue offering discounts through the first half, and partly absorb higher cost of BS-VI variants given tepid demand. The impact of this will be ~150-200 basis points, with operating profitability settling at 6-7% this fiscal for the sample set, owing to low operating leverage, with ~80% of cost pertaining to raw materials,” the Crisil report said.
