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Domestic CV industry volumes may contract by 25-28% in FY21: ICRA
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SME Times News Bureau | 30 Jul, 2020
The domestic commercial vehicle
industry volumes are expected to contract further by 25-28 per cent in
FY2021, rating agency ICRA said on Thursday.
The rating agency
has maintained a negative outlook for the segment over the near term,
saying that headwinds continued from all fronts, including financing
availability, macroeconomic environment, regulatory developments or
fleet operator health.
"The situation has been further
aggravated by the rapid spread of novel coronavirus in India. Demand
headwinds are expected to continue over the near term given the
macroeconomic challenges in view of the pandemic outbreak, coupled with
weakening financial profile of fleet operators and significant price
hikes because of transition to BS-VI emission norms," ICRA said in a
statement.
"Additionally, the lockdowns imposed in the country
from end of March 2020 have added production constraints to the on-going
set of challenges."
As per the statement, the only limited green
shoot visible is the uptick in rural demand, which augurs well for the
LCV (Truck) segment, although ability to recoup lost sales of Q1FY21
remains to be seen.
"Accordingly, the domestic CV industry
volumes are expected to contract further by 25-28 per cent in FY2021,
which would bring industry volumes to the lowest levels in more than a
decade. Although ICRA believes growth would be optically better in
FY2022 at 24-27 per cent, the recovery to industry volumes of even
FY2017 levels would remain some time away," the statement said.
"Overall,
these headwinds are expected to exert pressure on earnings and credit
profile of CV OEMs, which have witnessed sharp earnings contraction over
the past 4-5 quarters."
According to the statement, the sharp
volume and revenue contraction and resultant negative operating leverage
would exert significant pressure on the earnings and credit metrics of
CV OEMs during the current fiscal, after a year of relatively subdued
performance.
"These pressures are expected to continue at least
over the next couple of quarters, before recovery sets in," the
statement said.
"Accordingly, ICRA has a Negative outlook on the
industry and on three out of five rated entities in the sector, given
expectations of a weakening credit profile. For the other two rated
entities, ICRA believes that their robust balance sheet and liquidity
position would help tide over this phase, despite a temporary moderation
in credit metrics."
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