ICRA maintains negative outlook on PV, CV segments of auto industry

06 Jan 2020 Evaluate

Rating agency ICRA has maintained a negative outlook on the passenger vehicle (PV) and commercial vehicle (CV) segments of Indian auto industry. It said the negative outlook on the PV sector was due to the slowing economic growth, the sharp decline in wholesale despatches to destock dealership inventory as well as tepid retail demand. It also pointed out that Industry demand has come under pressure over the last few quarters due to factors such as liquidity crunch and tighter financing environment, weak rural income and overall slowdown in economic activity which has adversely impacted consumer sentiments.

While maintaining a stable outlook on the two-wheeler OEMs and tractor segments for 12-18 months in spite of on-going slowdown in two-wheeler sales and near-term volatility anticipated due to forthcoming BS-VI transition, rating agency said this is supported by the expectation that credit profile of two-wheeler OEMs will continue to remain strong despite moderation in earnings. Besides, it continues to maintain a negative year-end outlook for CV segment over the near term, given the slowing economic growth, current overcapacity in the segment and tight financing environment. It also expected that demand headwinds would continue over the near-term with likelihood of limited pre-buying ahead of the roll-out of BS-VI emission norms. It also said going forward, the volume outlook for the next fiscal also remains muted given the macroeconomic headwinds and on-going credit crunch coupled with significant price hikes because of transition to the new emission norms.

According to the report, dealership inventory level were at an elevated level (about 6-8 weeks) during the fourth quarter of the last fiscal, and subsequent inventory rationalization measures by OEMs as well as dealerships has resulted in sharp 18 percent decline in wholesale despatches during the first eight months of the current fiscal as compared to single digit decline in the retail volume over the same period. It also said there was a sharp divergence in retail demand growth and wholesale despatches during the first half of FY20 as focus was towards reducing inventory level. It stated that dealership inventory currently stands around four weeks, and therefore further scope of inventory destocking is limited, and going forward, the wholesale demand will largely mirror retail demand in the near term.

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