Pandemic packs a punch, ICRA predicts Indian auto industry to feel the pain

Most of the hopes of a steady recovery in the Indian automotive sector that was witnessed in the aftermath of a national lockdown last year may have been dented a big blow by the second wave of the Covid-19 pandemic. While the first lockdown in the months of March end, April and May of 2020 extracted a heavy toll on the industry, the past few months of this year have been every bit as severe. ICRA, a credit rating agency, has predicted much gloom and states that the pandemic is likely to decelerate recovery momentum of the domestic automotive industry.

The Indian automotive industry showcased impressive resilience last year when most manufacturers reported stellar performances after hardships during the national lockdown. The festive period around Diwali was especially heartening and a number of new and updated launches meant the buzz was back. That Covid-19 had mostly not entered the rural areas during the first wave also meant that sales of commercial vehicles and tractors were solid.

Not any longer.

ICRA especially notes that because in its second wave, infections have had a deeper and wider penetration, outlook for various segments has been revised downwards. The OEMs are facing the heat but so are auto-ancillaries to an extent. Lockdown and curfews, although deemed of utmost importance to possibly control the spread of the pandemic, have compelled factories to shut and dealerships to once again shutter down.

Break in buying pattern

While there is no respite in sight yet, ICRA further notes that demand may remain rather subdued. "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," says Shamsher Dewan, Vice President & Group Head, ICRA Ratings.

The report further highlights that the two-wheeler segment will bear the max brunt of the prevailing situation. "Accordingly, domestic two-wheeler volumes in FY2022 are expected to grow by 10-12% now as against 16-18% earlier," the report outlines.

Rising vehicle costs and hit on disposable income would also impact the passenger vehicle segment, with ICRA predicting a a lower growth of 17-20% now as against 22-25% expected earlier.

Commercial vehicle (CV) and Heavy Commercial Vehicles (M&HCVs) are expected to see a lower impact from the second wave of the pandemic as construction and mining activities continue largely unimpacted so far. ICRA however does point out that the Light Commercial Vehicle (LCV) segment could witness demand moderation on account of the rural impact of the pandemic.

Reason before repair

The lack of clarity about when India would get a grip over the second wave and how well prepared the country stands against a predicted third wave of Covid-19 pandemic remain big challenges. "While most of the segments would continue to report growth on a Y-o-Y basis, given the favourable base, the growth estimates stand revised downwards given the sharper and longer-than-expected impact of the second wave," said Dewan.