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  3. Commercial vehicle sales likely to contract further between 8-10% in FY21: ICRA

Commercial vehicle sales likely to contract further between 8-10% in FY21: ICRA

09 Apr 2020 Evaluate

Ratings agency ICRA in its latest report has said that volumes for the commercial vehicles (CV) segment are likely to contract further between 8-10 percent in the current financial year (FY21) as the near term outlook of the sector is weighed down significantly by the coronavirus pandemic. It continued to maintain a negative outlook for the CV segment over the near-term given the slowing economic growth, current overcapacity in the CV ecosystem and not so benign financing environment, with challenges further aggravated by the recent and rapid spread of novel coronavirus in India. 

According to the report, the demand headwinds are expected to continue over the near-term given the macroeconomic challenges in view of the recent pandemic outbreak coupled with weakening financial profile of fleet operators and significant price hikes because of transition to the BS-VI emission norms. It said this would exert pressure on earnings and overall credit profile of CV OEMs, which have witnessed sharp earnings contraction over the past 3-4 quarters. It also stated that excess capacity created in the system post revision of axle load norms in July 2018 and faster turnaround of vehicle post GST implementation, coupled with slowdown in the economy and infrastructure projects and the resultant lower freight availability continue to weigh on the demand prospects.

Furthermore, the report said the rapid spread of coronavirus and the lockdown imposed in the country has had a significant impact on goods movement and freight availability over recent weeks and may continue over the near-term. Accordingly, it said the outlook for the next financial year (FY22), especially the first half, remains weak given the macroeconomic headwinds in view of recent pandemic outbreak coupled with significant price hikes because of transition to the new emission norms. It also believes an improvement in the economic environment and resolution of liquidity constraints remain critical for a sustained revival in the industry.

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