Passenger Vehicle Industry’s FY21 Volumes Expected to See 22-25% Dip: ICRA

New Delhi: Passenger vehicle industry’s FY21 volumes are expected to witness a 22-25 per cent decline, ratings agency ICRA said on Wednesday. Also Read – India’s Public Debt, Stable Since 1991, To Jump to 90% Due to COVID-19 Pandemic: IMF

“The industry segment’s fortunes are tied with the GDP growth rates and overall consumer sentiments which are currently at historic lows; this recessionary environment has resulted in purchase deferrals,” ICRA said in a research note. Also Read – India’s GDP to Contract by 10.5% in FY21 Before Bouncing Back Next Year: Fitch Ratings

“While the industry was hit hard in Q1 FY2021; most PV and 2W OEMs started operating at pre-Covid level capacity utilisation during Sep-2020 (inventory re-stocking at dealership also supported wholesale dispatched during Sept’20) which is a positive.” Also Read – COVID-19 Crisis: India’s GDP Falls by Record 23% in June Against 3.1% Growth in Previous Quarter

ICRA, in its research note, also expects the PV industry volume to witness strong double-digit growth in FY2022.

“This will be after two consecutive years of negative growth at (-17.9 per cent) in FY2020 and (-22 to -25 per cent) in FY2021. The fall in demand is also being reflected in capacity utilisation which is likely to dip below 45 per cent in FY2021, from 50-55 per cent in FY2020,” the note said.

“We expect capex cut by 35-40 per cent during FY2021-FY2022, and incremental investments will be primarily towards new product development and platform improvisation.”

On the positive side, ICRA noted that industry’s long-term drivers are intact but compared to the Chinese and other key global markets, the domestic market is witnessing a slower paced recovery.

Commenting on the expected PV trend, Ashish Modani, Vice President, ICRA, said: “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 UV.”

“Buyers may opt for 2W or used cars to avoid public transport. The share of diesel vehicles is expected to decline below 40 per cent in UVs in the next two years and some manufacturers have already exited the diesel portfolio completely.”