Coronavirus Outbreak: Commercial vehicle sales likely to contract 8-10% further in FY21, says ICRA

The agency said it continues to maintain a negative outlook for the commercial vehicle segment over the near-term.

Press Trust of India April 08, 2020 17:01:30 IST
Coronavirus Outbreak: Commercial vehicle sales likely to contract 8-10% further in FY21, says ICRA

New Delhi: Ratings agency ICRA on Wednesday said commercial vehicle (CV) sales volumes in India are likely to contract further between 8-10 percent in 2020-21 as the near term outlook of the sector is weighed down significantly by the coronavirus pandemic.

The agency said it continues to maintain a negative outlook for the commercial vehicle segment over the near-term citing "slowing economic growth, current overcapacity in the CV ecosystem and not so benign financing environment, with challenges further aggravated by the recent and rapid spread of novel coronavirus in India".

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Representational image. PTI

"The demand headwinds are expected to continue over the near-term given the macroeconomic challenges in view of the recent pandemic outbreak coupled with weakening financial profile of fleet operators and significant price hikes because of transition to the BS-VI emission norms," ICRA said in a statement.

This would exert pressure on earnings and overall credit profile of CV OEMs, which have witnessed sharp earnings contraction over the past 3-4 quarters, it added.

Commenting on the situation, ICRA vice-president Shamsher Dewan said excess capacity created in the system post revision of axle load norms in July 2018 and faster turnaround of vehicle post GST implementation, coupled with slowdown in the economy and infrastructure projects and the resultant lower freight availability continue to weigh on the demand prospects.

"Furthermore, the rapid spread of coronavirus and the lockdown imposed in the country has had a significant impact on goods movement and freight availability over recent weeks and may continue over the near-term," he added.

Accordingly, the outlook for the next fiscal, especially the first half, remains weak given the macroeconomic headwinds in view of recent pandemic outbreak coupled with significant price hikes because of transition to the new emission norms, Dewan said.

"Any recovery in the latter half hinges on pick-up in construction activity. However, despite some channel inventory filling measures of OEMs, M&HCV (Truck) sales are expected to close the upcoming fiscal with further decline of 12-14 per cent during FY2021,” he added.

On the other hand, despite recovery expectations during the latter half, the light commercial vehicles truck segment is expected to contract further by 7-9 percent during FY2021, ICRa said, adding prolonged disruptions due to recent coronavirus outbreak poses further downside risks to this.

The passenger carrier segment is also expected to report demand contraction in the next fiscal, the ratings agency said adding, "accordingly, ICRA expects the (overall) segment volumes to contract by 8-10 per cent during fiscal year 2021".

"...the recent pandemic outbreak remains a significant unknown which can have a bearing on the economy and CV sales over the near to medium term. “ICRA believes an improvement in the economic environment and resolution of liquidity constraints remain critical for a sustained revival in the industry. In absence of either, we maintain a subdued outlook for the industry for the next fiscal." Dewan said.

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