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Volumes in the automobile industry this year are expected to decline by 22-25 per cent in the passenger vehicle segment, 16-18 per cent in two-wheelers, 17-20 per cent in light commercial vehicles and 35-40 per cent in medium and heavy commercial vehicles, said ICRA on Wednesday. Tractors may buck the trend to grow by 7-8 per cent, it said.
Overall, the auto component industry is estimated to contract by 14-18 per cent in FY2021, the credit rating agency said.
Unlike the Chinese and key global markets, where the PV industry has seen a V-shaped recovery, in India, the segment will see a gradual and slow-paced recovery, said Ashish Modani, Vice President, ICRA.
While the industry was hit hard in Q1 FY2021, most PV and 2W OEMs started operating at pre-Covid level capacity utilisation during September, the agency said.
The fall in demand is also reflected in capacity utilisation, which is likely to dip below 45 per cent in FY2021, from 50-55 per cent in FY2020. ICRA expects a capex cut of 35-40 per cent during FY2021-FY2022, and incremental investments will be primarily towards new product development and platform improvisation.
“There is an increased risk aversion in retail as well as wholesale financing, which is a deterrent. The rural market will be the key driver of volume in FY2021, which will benefit entry-level cars and UVs. Buyers may opt for 2W or used cars to avoid public transport,” said Modani. The luxury car segment will witness a decline of over 40 per cent in the current financial year, he added.
The share of diesel vehicles is expected to decline below 40 per cent in UVs in the next two years, he said. The key monitorable for sustenance of demand in PVs will be delinquencies in the retail portfolio, it said. Quarterly trends in discounts also indicate that discounts have eased from an all-time high during H2 FY2020, while they remain relatively high on mid-size sedans and diesel variants of certain models.
In the CV segment, as against monthly sales of 80,000+ units reported prior to the pandemic, sales trended at less than 40,000 units in September, even after four months of sequential improvement, said ICRA.
The FY2021 outlook for CVs is contingent on recovery in macro and infra activity, while the pandemic also poses significant downside risks, it said. The negative operating leverage is expected to significantly pressurise margins in FY2021; the same may fall to 2.1 per cent in FY2021 from 2.6 per cent in FY2020, before rising to 5.3 per cent in FY2022. The credit metrics have materially weakened in FY2020, and are likely to further weaken in FY2021. The pandemic outbreak will significantly impact capacity utilisation levels of the CV industry, which is expected to fall to 36 per cent in FY2021. Given the current liquidity constraints and bleak demand, OEMs are curtailing capex spends - from Rs 6,700 crore in FY2020, it is expected to fall significantly to Rs 2,400 crore in FY2021.
ICRA has revised upwards its growth forecast for tractors to 7-9 per cent growth from 2-4 per cent earlier.
The auto ancillary sector, which has registered an over 60 per cent decline in revenues during Q1 FY2021, is expected to decline by 5-7 per cent y-o-y during Q2 FY2021. Industry-wide revenues are expected to contract by 14-18 per cent during FY2021, it said.
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