ICRA maintains a negative outlook on passenger vehicles, CV

MUMBAI: Rating Agency ICRA on Friday he maintained a negative outlook on the passenger vehicle (PV) and commercial vehicle (CV) segments while maintaining a stable outlook on two-wheel OEMs and tractor segments

The negative outlook in the photovoltaic sector was due to the slowdown in economic growth, the sharp decline in wholesale shipments to dealers' inventory, as well as lukewarm retail demand, Icra said in a statement.

Industry demand has been pressured in recent quarters due to factors such as liquidity shortages and a tighter financial environment, weak rural incomes and a general slowdown in economic activity that has negatively affected consumer feelings, according to The rating agency.

The dealer's inventory level was at a high level (around 6-8 weeks) during the fourth quarter of the last fiscal year, and subsequent inventory rationalization measures by original equipment manufacturers and dealers have resulted in a sharp 18 percent decrease in wholesale shipments during the first eight months of the current fiscal period compared to the single-digit decrease in retail volume during the same period, he said.

There was a strong divergence in the growth of retail demand and wholesale shipments during the first half of fiscal year 20, as the focus was to reduce the level of inventory, Icra said.

Dealer inventory is currently maintained for around four weeks and, therefore, the additional scope of inventory reduction is limited.

ICRA also said it continues to maintain a negative year-end outlook for CV segment over the near term, given the slowing economic growth, current overcapacity in the segment and tight financing environment.

Winds against the demand are expected to continue in the short term with the probability of a limited pre-purchase before the implementation of the BS-VI emission standards, according to Icra onwards, the volume prospects for the next fiscal year also remain attenuated given the winds against macroeconomic and the credit crisis in progress, along with significant price increases due to the transition to new emission standards, he said.

The improvement in the economic environment and the resolution of liquidity restrictions remain critical for a sustained revival in the industry. In the absence of any of them, the rating agency maintains a moderate outlook for the industry for the next fiscal year, Icra said.

Maintaining a stable outlook in the two-wheel segment for 12-18 months despite the continued slowdown in two-wheel sales and expected short-term volatility due to the upcoming BS-VI transition, Icra said this is backed by The expectation that two-wheel OEM credit profile will remain strong despite the moderation in earnings.

In addition, weak domestic market demand has been partially offset by healthy export growth (up to 6.5 percent through November of the current fiscal month.

The rating agency expects the prices of BSVI vehicles to be 10-12 percent higher than their BS-IV counterparts, which will generate some pre-purchase in the January quarter of the fiscal year.

However, demand may remain moderate in the first half of fiscal year 21 as consumers adjust to the new normal, he said.

Overall, ICRA expects industry volumes to contract by 8-10 per cent in FY2020, with some moderation in decline in H2.

Amid moderate demand and high production cost of the BSVI portfolio, the operating margins of two-wheel OEMs are expected to moderate marginally from current levels, Icra said, adding that OEMs are expected to continue investing in the development of new products, technologies and improvements of national products. and sales network abroad.

According to the rating agency, notwithstanding the contraction in tractor sales during the current fiscal, it has maintained a stable outlook for the tractor s segment, as it expects gradual improvement over the next 12-18 months.

This will be favored by the expectation of better agricultural cash flows (from the next rabi season) and the government's continued commitment to rural development and agricultural mechanization, a critical component for improving the state of agriculture in the country, according to Icra.

The demand sentiments in the domestic tractor industry have remained weak since the turn of the calendar year, led by weak farm cash flows as well as high-base effect following three years of steady growth in tractor volumes, it said.

Overall, ICRA expects industry volumes to contact by 7-9 per cent in FY2020, with a moderation in decline in volumes likely to be seen in H2 FY2020, it said.