Six times bigger net loss for commercial vehicle makers, as coronavirus puts sales in reverse gear

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August 20, 2020 6:39 PM

Commercial vehicle makers are likely to report a six times jump in their net loss this financial year owing to depleting sales numbers.

While coronavirus has intensified the troubles of commercial vehicle makers, they were not doing well last year either.

Commercial vehicle makers are likely to report a six times jump in their net loss this financial year owing to depleting sales numbers. “A 30% decline in sales volume on an already weak base would lead to a nearly six-fold increase in net loss to Rs 6,000 crore for commercial vehicle (CV) makers this fiscal,” a report by CRISIL said on Thursday. The problems for CV makers may even get aggravated due to a stretch in working capital owing to support extended to dealers and suppliers. This may cause a sizable dent in cash flows and thus swell debts.

However, while coronavirus has intensified the troubles of commercial vehicle makers, they were not doing well last year either. They were already reeling under new overloading norms and a slowing economy when coronavirus started spreading. In the previous financial year, CV makers had reported a decline in sales by nearly 30%. With coronavirus hitting the country, volume plunged another 85% because of the pandemic-driven lockdown in the first quarter of 2020-21. India was under one of the strictest lockdowns in the world during the end of March to the end of May. However, the government eased restrictions after May end to allow resumption of economic activities.

“Two consecutive years of high de-growth are likely to result in CV volume reaching its lowest point in 10 years. With utilisation down to a third, high fixed costs would dent the profitability of CV makers,” Manish Gupta, Senior Director, CRISIL Ratings, said. While sales of medium & heavy commercial vehicles (MHCVs) are likely to nosedive, sales of light commercial vehicles (LCVs) provide a glimmer of hope as they may fare better with support from the rural economy and private consumption. MHCVs account for two-thirds of industry revenue.

Further, as commercial vehicles are a critical logistical link to the economy, their sales are likely to bounce back by the coming fiscal and are likely to reach the volumes of the last fiscal. “That would substantially pull up the profitability of manufacturers, reverse the working capital stretch and restore credit metrics,” the report said. However, a further stretch in bounceback may hurt manufacturers.

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