New Delhi: The severe onset of the second wave of the COVID-19 pandemic in the country has derailed the recovery momentum of the automobile original equipment manufacturers (OEMs) and auto-ancillaries. Many of them have resorted to plant shutdowns as a restrictive measure. Similarly, the automotive dealerships across regions have not been operational because of the restrictions imposed by various states and local authorities to curb the pandemic, ICRA Ratings said in a recent report.
Shamsher Dewan, vice president and group head, ICRA Ratings, said, “The second wave of the pandemic, the intensity of which has taken the entire country by surprise, is expected to impact near-term automobile purchases, across segments. Unlike the first wave, where infections were largely limited to urban clusters, the second wave has seen deeper and wider penetration, including into rural hinterlands. Additionally, the significant medical spends have eroded the purchasing power of individuals and families to a greater extent, which would impact large ticket discretionary purchases like vehicles, at least over the near-term.”
Within the different industry segments, the two-wheeler segment is expected to be the most impacted, with the target consumer segment’s affordability and demand sentiment sharply hit by the second wave. Accordingly, domestic two-wheeler volumes in FY22 are expected to grow only by 10%-12% now as against 16%-18% earlier. The domestic passenger vehicle (PV) segment would also see a softening of demand due to the spread of the pandemic to hinterlands. With the impact on disposable income and because of the rising vehicle costs (including fuel cost), growth in the PV segment will be down to 17%-20% now from 22%-25% expected earlier.
Within the commercial vehicle (CV) segment, medium and heavy commercial vehicles (M&HCVs) would see a relatively lower impact of the second wave of the pandemic, as construction and mining activities continue largely unaffected so far. However, the light commercial vehicles (LCVs) are likely to face some demand moderation on account of the rural impact of the pandemic, the likelihood of financing challenges for the segment, and some slackening of e-commerce demand due to increased restrictions and wariness.
The bus segment would also continue to be severely impacted due to the wipeout of the seasonal demand from schools, increased prevalence of work-from-home practices and weak tourism prospects, in addition to the general aversion to public transportation and spaces. Overall, the CV segment is expected to grow only by 21%-24% (on a low base) in FY22, as compared to 27%-30% expected earlier.
Tractors, which had reported record sales in 2020-2021 despite the pandemic impact, the volume growth is likely to be flat this year, especially due to the high base of the previous year. Additionally, the rural spread of the pandemic would also act as a dampener. The growth prospects primarily hinges on the monsoon behavior across the country, stable crop prices, healthy crop harvest and procurement prices. Along with these, the government support also offers some comfort regarding stability in farm cash flows. Overall, ICRA expects the segment to close the year with 1%-4% growth, lower than the 4%-6% growth expected earlier.
“While most of the segments would continue to report growth on a Y-o-Y basis, given the favorable base, the growth estimates stand revised downwards given the sharper and longer-than-expected impact of the second wave. While a pick-up in the vaccination drive is expected to support flattening of the curve going forward, an elongated recovery cycle or the possibility of a third wave offers further downside risks to these estimates,” Dewan said.
