Amid weak urban and rural consumption along with limited credit availability and the rising cost of ownership, credit rating agency, India Ratings and Research (Ind-Ra) in its latest report has revised its outlook on the automobile sector to stable-to-negative from stable for the remaining FY20. The agency is expecting high, single-digit volume de-growth in the range of 8%-9% Y-o-Y in total domestic volumes in FY20.
According to the report, although 1HFY20 witnessed sharp de-growth in volumes, the second half of the year will see flat-to-low single-digit growth, aided by the festive season and pre-buying due to the likely price rise from April 2020 after the enforcement of the Bharat Stage VI (BS-VI) emission norms. However, the overall vehicle growth for FY20 is expected to be subdued.
Further, Ind-Ra noted that the credit metrics of auto original equipment manufacturers (OEMs) are likely to remain resilient in 2HFY20, albeit at lower levels than those observed over FY15-FY19. Besides, the agency added that EBITDA margins and leverage of auto OEM sector are likely to moderate in FY20 due to weak volumes and the heavy discounts being offered to promote sales.