Credit rating agency Fitch Ratings has said that it expects Indian automakers’ profitability to remain weak as the pandemic’s economic impact will weigh on demand in current financial year (FY21). However, it said volumes are expected to partly recover in the second half of FY21 as sales gradually increase after the easing of lockdown measures since May.
Further, it stated that India’s automakers reported sharper volume declines and weaker profitability in the last quarter of the financial year ended March 31, 2020 (4QFY20) than in the earlier quarter. The agency cited factors such as slowing GDP growth and weak consumer sentiment to have reduced volumes and led to higher discounts by automakers. It said the implementation of BS6 - a more stringent emission framework - in April 2020 will increase production costs.
It mentioned sales in all key auto categories fell sharply in 4QFY20 from 3QFY20 when discounts offered by automakers during the festive season helped to slow the downtrend in sales that started in the beginning of 2019. Auto sales were affected by weak consumer sentiment as quarterly GDP growth slowed over FY20 and buyers’ preference to wait for newer, BS6-compliant models.
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