Auto industry expected to see 20% decline in FY21, Demand still remains uncertain: Fitch

The economic fallout of the pandemic exacerbated the already weak consumer sentiment due to the higher cost of ownership under BS-VI. The agency pointed out that this is likely to constrain demand from first-time car buyers as well as those looking to upgrade despite their preference for private transportation due to hygiene reasons.

By:Updated: Aug 19, 2020 10:20 AM

India’s auto demand continues to face several challenges and the overall industry volume is expected to decline by more than 20% in the financial year to June 2021, Fitch Ratings has said. Demand still remains uncertain despite the sharp slide in sales in April-June 2020 slowing in July, which could be owing to the release of pent-up demand following the gradual easing of restrictions to contain the Covid-19 pandemic, the international rating agency added. The economic fallout of the pandemic exacerbated the already weak consumer sentiment due to the higher cost of ownership under BS-VI. This is likely to constrain demand from first-time car buyers as well as those looking to upgrade despite their preference for private transportation due to hygiene reasons, the agency pointed out.

Likely curtailment in private and public investments will weigh on demand for commercial vehicles (CVs), particularly medium and heavy commercial vehicles (MHCVs). The pandemic has also reduced the availability of financing as lenders exercise caution particularly to weaker borrowers who form a significant customer base for CVs, it further said. Monthly sales volume – mainly in passenger vehicles (PVs) – improved markedly in July, benefiting from the gradual easing in the government’s stringent lockdown measures imposed in the last week of March. Nonetheless, PV volumes remained lower on a year-on-year basis.

Domestic sales volume of PVs increased by 73% in July from June, and that of two-wheelers rose by 26%, according to the Society of Indian Automobile Manufacturers (Siam). However, the volume of PVs was 4% lower on a y-o-y basis and that of two-wheelers was 15% lower, though the decline was much smaller than in June. According to Fitch, CV volume continued to fall more sharply in July compared with PVs, with continued weakness in MHCVs. Ashok Leyland, a leading manufacturer of MHCVs, reported a 75% y-o-y drop in domestic MHCV volumes in July, following a decline of more than 90% in Q1FY21 for both Ashok Leyland and the broader industry.

Sales volumes of light commercial vehicles (LCVs) fared better, with Mahindra & Mahindra (M&M), a leading LCV manufacturer, reporting sales falling by 16% y-o-y in July, compared with a drop of 69% for M&M and 80% for the broader LCV industry in Q1FY21. The sharp volume declines reduced revenues and resulted in operating losses for most Indian automakers in Q1FY21. However, the cost-saving efforts by companies, including Maruti Suzuki India, M&M and Ashok Leyland, helped reduce operating losses, Fitch said.

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