Second COVID-19 wave may pose downside risks to domestic auto industry demand in near term: Ind-Ra

26 Apr 2021 Evaluate

India Ratings and Research (Ind-Ra) in its latest report has stated that the second wave of COVID-19 could pose downside risks to the domestic auto industry demand in the near term. The demand for commercial vehicles (CVs) may revive in the second quarter of 2021-22 as economic activities improve, and also due to the lower capacity in the system after consecutive double-digit decline in 2019-20 and 2020-21. Demand for CVs, particularly medium and heavy CVs, is likely to also benefit from various government initiatives to help revive the economy. However, the revival of the passenger carrier segment is still some time away.

The domestic automobile industry's sales volume declined 14 per cent year-on-year (Y-o-Y) in the last fiscal year with passenger and commercial vehicle segments sale falling 2 per cent and 21 per cent respectively, while the two-wheelers volume fell 13 per cent (Y-o-Y). The decline in sales volume is in line with Ind-Ra's estimate of 14 -18 per cent decline for the year. For 2020-21, the total retail sales volume fell 34 per cent Y-o-Y led by 17 per cent drop in passenger vehicle (PV) sales, 51 per cent fall in CV sales and 34 per cent drop in two-wheeler (2W) retail registrations, respectively. Amid lower discretionary purchases by consumers, PVs remained the saving grace for the domestic retail market.

The report said however, retail PV sales volumes grew 28 per cent in March 2021 over the year-ago period while other segments such as CVs, 3Ws, and 2Ws tell a rather grim story as retail sales declined 42 per cent, 51 per cent and 35 per cent Y-o-Y, respectively last month. The double-digit decline in retail sales across segments, except PVs, in March 2021 indicates that consumer sentiment has not fully recovered, it said, adding Ind-Ra believes that the second wave of COVID-19 could pose downside risks to the domestic auto industry demand in the near term.

According to the report, the domestic auto industry recorded positive growth for the eighth consecutive month in March 2021. PV and 2W sales volumes were up 115 per cent and 73 per cent Y-o-Y, respectively in March 2021, aided mainly by the low base of March 2020. Export volumes also continued the growth trend in March 2021, up 57 per cent from March 2020, boosted by 63 per cent Y-o-Y growth in 2W exports. For 2020-21, the total export volumes declined 13 per cent Y-o-Y with PV, CV, and 2W exports volume falling 39 per cent, 17 per cent, and 7 per cent Y-o-Y, respectively. The PV segment has benefitted the most from the preference for personal mobility, resulting in the lowest decline among segments; also lower than Ind-Ra's expectation of a 5-8 per cent decline for 2020-21.

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