Commercial vehicle sales are likely to contract 8-10% more in fiscal year 21, says ICRA

NEW DELHI: Credit rating agency ICRA said on Wednesday that commercial vehicle (CV) sales volumes in India are likely to contract further by 8-10 percent in 2020-21 in the near term panorama of the sector is significantly affected by the coronavirus pandemic.

The agency said it continues to maintain a negative panorama for the CV segment over the near-term citing slowing economic growth, current overcapacity in the CV ecosystem and not so benign financing environment, with challenges further aggravated by the recent and rapid spread of novel coronavirus in India.

The demand Se espera que los vientos en contra continúen en el corto plazo dados los desafíos macroeconómicos en vista de la reciente pandemic. outbreak coupled with the weakening of the financial profile of fleet operators and the significant increase in prices due to the transition to BS-VI emission standards, ICRA said in a statement.

This would put pressure on earnings and the overall credit profile of CV original equipment manufacturers, which have witnessed a sharp contraction in earnings in the past 3-4 quarters, he added.

Brief notices

Explore the writings

Commenting on the situation, the ICRA Vice President Shamsher Dewan said excess capacity created in the system post revision of axle load norms in July 2018 and faster turnaround of vehicle post GST implementation, coupled with slowdown in the economy and infrastructure projects and the resultant lower freight availability continue to weigh on the demand prospects.

Furthermore, the rapid spread of coronavirus and the lockdown imposed in the country has had a significant impact on goods movement and freight availability over recent weeks and may continue over the near-term, I added.

Accordingly, the panorama for the next fiscal, especially the first half, remains weak given the macroeconomic headwinds in view of recent pandemic outbreak coupled with significant price hikes because of transition to the new emission norms, Dewan said.

Any Recovery en la segunda mitad depende de la Recovery de la actividad de construcción. Sin embargo, a pesar de algunas medidas de llenado de inventario de canal de los fabricantes de equipos originales, se espera que las ventas de M&HCV (Camiones) cierren el próximo año fiscal con una mayor disminución del 12-14 por ciento durante el año fiscal 2013 , agregó.

On the other hand, despite Recovery expectations during the latter half, the light commercial vehicles truck segment is expected to contract further by 7-9 per cent during FY2021, ICRa said, adding prolonged disruptions due to recent coronavirus outbreak poses further downside risks to this.

The passenger carrier segment is also expected to report demand contraction in the next fiscal, the ratings agency said adding, "accordingly, ICRA expects the (overall) segment volumes to contract by 8-10 per cent during fiscal year 2021".

"...the recent pandemic outbreak remains a significant unknown which can have a bearing on the economy and CV sales over the near to medium term. “ICRA believes an improvement in the economic environment and resolution of liquidity constraints remain critical for a sustained revival in the industry. In absence of either, we maintain a subdued panorama for the industry for the next fiscal." Dewan said.