The domestic automobile industry is headed for another year of double-digit sales decline this fiscal, given the extended lockdown to contain the COVID-19 pandemic, CRISIL Research said on Thursday.
Overall sales volume would plunge to multi-year lows, with sales of both passenger and commercial vehicles reaching fiscal 2010 levels, it said.
For the full fiscal, sales of passenger vehicles (PVs) are expected to decline 24-26 percent as compared with a 21-23 percent contraction for two-wheelers, according to CRISIL Research.
Commercial vehicles (CVs) sales are expected to decline by 26-28 percent. However, contraction in tractor sales in the current fiscal is expected to be around 7-9 percent only, it added.
“Automobile sales are running out of steam as urban income sentiment wilts under the pandemic. We assessed around 26,000 companies that have a total employee cost of Rs 7 lakh crore,” Hetal Gandhi, Director, CRISIL Research said at a webinar jointly hosted with CRISIL Ratings. .
“It indicates that over 60 percent of this cost resides in companies that are expected to see a sharp reduction in revenue growth, and where employees are a meaningful cost head. This is expected to lead to higher risk of job losses or pay cuts,” Gandhi added.
According to CRISIL Research, what started as a supply-side pain has quickly engulfed the demand side too, with job loss and pay cut fear dampening consumer sentiment.
A recovery in demand is expected only from the festival season in the third quarter of this fiscal, and largely for two-wheelers and tractors, which have a higher rural share.
However, PVs and CVs, which have a higher share of replacement demand, are expected to recover only in the fourth quarter, it said.
Given this, PVs, a big-ticket item with a replacement share of 60-70 percent, are expected to see purchasing decisions postponed. That’s also because the segment has a high finance penetration of 78-80 percent, and given the income uncertainty, fewer consumers would be willing to take a loan, it said.
At the other end, CV sales have been languishing under the impact of new axle load norms, and are unlikely to show much recovery till freight demand remains low, it said.
However, tractors and two-wheelers are likely to see relatively faster recovery in the second half of this fiscal.
Both the segments will benefit from a bumper rabi production and forecast of a normal monsoon, which augurs well for rural incomes, CRISIL Research stated.
“A sharp contraction in sales would lead to a decline in average utilisation at the industry level from around 58 percent to below 50percent this fiscal.
“In the PV segment, utilisation would roll down from 58 percent to 44 percent, in two-wheelers from 65 percent to 50 percent, in tractors from 59 percent to 51 percent, and in CVs from 51 percent to 39 percent,” Pushan Sharma, Associate Director, CRISIL Research, said.
Within two-wheelers, which have a lower replacement share of around 50 percent and lower finance penetration of 35-40 percent, motorcycles are expected to fare better, riding on rural demand, while for tractors, sentiment is only moderately negative as agricultural activity is exempt from the lockdown and the prospects for crop season are better, it said.
source: moneycontrol
