NEW DELHI: Ratings agency ICRA on Thursday revised downwards sales forecast for two-wheelers in India, expecting it to decline by 16-18 per cent to around 1.7 crore units in FY2021.
ICRA had earlier said that two-wheeler (2W) sales could decline by 11-13 per cent in the current fiscal.
In a statement, the rating agency attributed the revision in sales forecast to "overall macroeconomic scenario, the COVID-19 demand-supply disruptions, looming income uncertainties and increased cost of ownership of BS-VI vehicles".
The aggregate capacity utilisation levels for the industry sample is expected to decline to 55-60 per cent from around 70 per cent, it added.
"However, despite moderation, the 2W OEMs will continue to have strong credit profiles characterised by healthy return on capital employed (ROCE) -- average ranging between 18-20 per cent -- and comfortable balance sheets with negligible debt and strong cash and liquid investments," the ratings agency said.
While any major expansion plans are expected to be deferred till the demand recovers sufficiently, it is expected that original equipment manufacturers (OEMs) will continue investing in new product development and network expansion, it added.
ICRA said despite the overall muted macro-economic sentiments, on the positive side, the rural economy offers some growth off-shoots in the form of healthy rabi output and lower COVID-19 impact.
"Higher farm income has led to sequential pick-up in 2W demand in June and July 2020. After a timely onset, monsoon progress remains healthy across most regions. These factors coupled with government's various agri-focused initiatives, are expected to support farm cash flows and 2W demand," it added.
In the urban markets, which have been more severely impacted by the pandemic, a preference towards personal mobility could push near-term 2W demand, ICRA said. However, "these would only help to partially offset the adverse impact of the pandemic".
"Given the expectation of sharp decline India's GDP, lower job creation and income uncertainties, two-wheeler demand will most certainly remain adversely impacted. There is a likelihood of downtrading by consumers as well once the economy starts to cripple back to normalcy," ICRA said.
On export front, while long-term drivers remain favourable, COVID-19 fallout and volatility in crude oil prices, as it impacts demand in key markets, remain a near term negative.
"Nonetheless, an attractive product portfolio and continued focus of Indian 2W OEMs on building and expanding overseas sales and after sales networks, replacement market, provide potential for growth in the medium term," it said.
ICRA further said while near-term demand environment remains challenging, it continues to maintain a volume compound annual growth rate (CAGR) estimate of 6-8 per cent for two-wheeler segment over the medium term.
"This is backed by positive structural factors like favourable demographic profile, growing middle class, low 2W penetration, improving financing availability, participation of women in the workforce and rapid urbanization," it said.
Additionally, the ratings agency said, "The under-developed public transport system, in the backdrop of increasing road network, has steered personal mobility requirements which also continues to support the demand for two-wheelers."