Auto volumes to grow in double digits: Ind-Ra Mumbai

Auto volumes to grow in double digits: Ind-Ra Mumbai

AgenciesUpdated: Saturday, March 13, 2021, 08:35 AM IST
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Auto volumes to grow in double digits: Ind-Ra Mumbai | Photo by Torsten Dettlaff from Pexels

India Ratings and Research (Ind-Ra) on Friday revised its outlook for the auto sector to improving for FY22 from negative on account of a likely revival across segments aided by positive consumer sentiments amid macroeconomic tailwinds as the economy recovers from Covid pandemic.

Ind-Ra expects auto volumes to rebound at 16 to 20 per cent year-on-year in FY22 after recording an estimated decline of 14 to 18 per cent in FY21.

Passenger vehicles (PVs), two-wheelers (2Ws) and commercial vehicles (CVs) can record a decline of 5 to 8 per cent, 13 to 16 per cent and 30 to 35 per cent in FY21 respectively.

Continued preference for personal mobility and demand across urban and rural markets will be positive for PVs and 2Ws, it said. PV and 2W sales can grow by 18 to 22 per cent and 16 to 20 per cent in FY22.

The lower growth in 2Ws than PVs can be because of their increased cost of ownership. CVs can record high double-digit growth in FY22 of 25 to 30 per cent, aided by an uptick in industrial production, increased infrastructure and construction activities. and a low base owing to the slowdown over FY20 to FY21.

Nevertheless, the monthly sales in CV segment are likely to achieve FY19 levels only by 2H FY22.

Ind-Ra said it expects limited rating movements in the sector in FY22 and has thus maintained a stable rating outlook. Industry revenues can increase 16 to 20 per cent during FY22 after declining by 8 to 10 per cent in FY21.

EBITDA margins are likely to remain steady if higher input prices are offset by cost corrective measures taken by original equipment manufacturers coupled with improving operating leverage. Credit metrics can improve in FY22.

Margins and credit metrics of CV players are likely to witness a higher improvement than the industry due to a weaker base in FY21. Refinancing risk is low for the industry and there is adequate rating headroom.

Though the details of proposed Vehicle Scrappage Policy are yet to be announced, it can be helpful in creating incremental demand if incentives are attractive for consumers.

Rising fuel prices and original equipment manufacturers mulling for another price hike amid increasing input costs can act as possible headwinds for the sector, said Ind-Ra.

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