According to ICRA, each 15-days extension of the lockdown has led to three to five percent decline in full-year industry demand.
02 Jun 2020 | 6212 Views | By Shahkar Abidi
The Covid-19 pandemic and the lockdown to contain its spread has severely impacted the domestic passenger vehicle (PV) industry in India. As per the recent ICRA assessment, the PV demand is now estimated to decline by 22 to 25 percent in FY2021 compared to previous estimates of 10-12 percent decline ...
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The Covid-19 pandemic and the lockdown to contain its spread has severely impacted the domestic passenger vehicle (PV) industry in India. As per the recent ICRA assessment, the PV demand is now estimated to decline by 22 to 25 percent in FY2021 compared to previous estimates of 10-12 percent decline in FY2021 after the first phase of lockdown in March.
Interestingly acording to the latest forecast issued by LMC Automotive, India will see a dramatic 47 percent drop in its PV sales in the 2020 calendar year with volumes dropping from the anticipated 3.55 million units to 1.88 million units by end-December.
According to ICRA, each 15-days extension of the lockdown has led to three to five percent decline in full-year industry demand. Multiple lockdown extensions are having a direct bearing on the economic environment and consumer sentiments. Given the conditions, ICRA continues to have a ‘Negative’ outlook on the PV industry since Q2 FY2020.
Commenting on the PV sector outlook, Ashish Modani, vice president, Co-Head- Corporate Ratings, ICRA says, “Compared to our initial expectation of about 50-55 percent decline in volume during Q1 FY2021, the decline could be upwards of 80 percent thereby significantly impacting overall volume growth estimate for a full year".
Demand environment expected to be weak
According to Modani, while the demand environment is likely to remain weak for the next four-six months, the low base of Q2 FY2020 (when wholesale dispatches declined by 29 percent YoY) will moderate pace of decline in Q2 FY2021.
ICRA expects GDP to decline by five percent in FY2021 as compared to earlier 4.7 percent growth expectation before the Covid-19 lockdown comenced. Real income is likely to decline in the near-term which will directly impact large discretionary purchases like a car, real-estate amongst others.
Modani pointed out that, “Going forward, the outlook on the passenger vehicle sector could turn to Stable from Negative, if the demand environment improves on a consistent basis over the next 12-18 months. Recovery in rural income and improvement in overall economic activity remains crucial to have any meaningful improvement in retail demand off-take.”
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