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No China like 'V shaped' recovery for Indian car industry, says report

The ICRA estimates domestic demand to decline by 22 per cent to 25 per cent in FY2021 as multiple lockdown extensions have a direct bearing on the economic environment and consumer sentiments

Published: 14th July 2020 05:25 PM  |   Last Updated: 14th July 2020 05:25 PM   |  A+A-

Automobile, Car manufacturer

Representational image. (Photo| EPS)

By Express News Service

The domestic passenger vehicle industry is unlikely to replicate the Chinese 'V shaped' recovery, said a report on Tuesday. Instead, demand for passenger vehicles in India is expected to witness a gradual recovery.

According to fresh data issued by Siam on Tuesday, India's passenger vehicle sales fell 50 per cent year-on-year in June to 1,05,617 units due to the COVID-19 pandemic and slowdown in economic activity.

However, sales of automobiles recovered handsomely in China post the lockdown. While car sales in May rose by around 2 per cent year-on-year, it fell 6.5 per cent to 1.68 million units in June, data from the China Passenger Car Association (CPCA) said.

Ashish Modani, VP & Co-Head Corporate Ratings, ICRA, said, "Vehicle penetration has a strong correlation with income levels. We believe that a repetition of the Chinese V shaped recovery is unlikely in India given low income levels and weak consumer sentiments. Also, per capita disposable income in India is not comparable to China or other developed markets. Hence, car ownership continues to remain a distant dream for a large share of the Indian population."

According to the ICRA, the industry is pinning its hopes on a revival in rural income to support growth during the festive season and thereafter. The recovery is likely to happen in the two wheeler and used car segment first compared to new car purchases as concerned buyers will want to own personal transport over public transport due to possible infection fears, it said.
 
ICRA estimates domestic PV demand to decline by 22 per cent to 25 per cent in FY2021 as multiple lockdown extensions have a direct bearing on economic environment and consumer sentiments. 

"Each lockdown extension by 15 days has taken toll on full year industry demand by 3-5%. While demand environment is likely to remain weak for next 4-6-month, low base of Q2 FY2020 (when wholesale dispatches declined by 29% Y-o-Y) will moderate pace of decline in Q2 FY202," it said.

Automobile production has been impacted by supply constraints due to lockdown and logistics issues. This is also getting reflected in capacity utilization which given the weak demand is expected to moderate sharply, with overall capacity utilization likely to plummet below 45 per cent in FY2021. The cumulative industry revenues and OPM too will suffer and remain weaker. There will be deferment of about 30-40 per cent spending towards capex/investment in the next two fiscals, the ICRA said.

As for credit profile, PV OEMs having a strong market position may be able to tide over the current slowdown due to strong liquidity buffer while weaker players will rely on financial support from promoters in the interim.

“Despite accommodative commodity prices, weakness in demand will impact credit metrics for PV OEMs, their dealers as well as their vendors. Sharp decline in volume amid heightened investments by OEMs will impact return indicators of industry participants in the near term. The outlook on the PV sector could turn stable if demand environment improves on a consistent basis over the next 12 months. Recovery in rural income and improvement in overall economic activity remain crucial to have any meaningful improvement in retail demand off-take,” said Modani.



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