India's auto sector face extended slowdown, sales may take 4 years to see growth

Automobile makers are in for tough period at least in the short to medium term as the period of poor sales is expected to continue well into the first half of current fiscal year with only a moderate recovery thereafter.

Vehicle sales across the country had remained subdued for last several months over economic slowdown and subsequent slowing of demand. But the Covid-19 pandemic and lockdown has brought automobile industry on its knees with most companies reporting zero sales in April.

According to a report by global analytic firm Crisil, with the current disruption in the economic activity, passenger vehicle (PV) sales could de-grow 25% in fiscal 2021. This is on top of an 18% decline in fiscal 2020.

What this means is that companies are expecting subdued demand for vehicles even after the lockdown is withdrawal and businesses try to return to normal.

While PV sales reaches new low in FY21, it would try recover gradually in the second half of this fiscal. Crisil has said that over fiscals 2021-2024, sales are likely to log 12.6% CAGR that should be music to ears of companies.

"The PV market has huge potential because of lower penetration of vehicles, which stands at 23 PVs per 1,000 people. In comparison, China has 155 PVs per 1,000 people and Brazil 119. Hence, we expect PVs to continue to b oost passenger traffic and toll collections in future," the Crisil report said.

PV and Utility Vehicle (UV) sales in the country stood at close to 2.8 milli on vehicles in FY20. As per Crisil projections, this should fall to 2.1 million units in FY21. Hence it will maintain gradual growth trajectory surpassing the FY20 numbers only by FY24 when it will climb to 3 million units sales.

"Revival in PV sales expected over the long term. A gradual recovery likely in the second half of the current fiscal. Over fiscals 2022-2024, the sales expected to log 10-11% CAGR," Crisil said.

Commercial vehicle would, however, see higher utilisation rate due to greater consumption of goods. This would lead to stronger sales of these vehicles.

Lower or no sales in April has extended the plan of several auto companies t o start production as many have build up inventories of few weeks to a month or more. This means that despite relaxations offered by governments in lock down, production at several facilities may not start immediately.