The pressure on India's auto industry will continue in FY 2021 due to COVID-19. According to Fitch Ratings, the profitability will continue to be weak as demand will take a hit in FY21.
The implementation of BS VI in April 2020 will increase production costs. The rating agency said, “Indian automakers reported sharper volume declines and weaker profitability in the last quarter of the financial year ended 31 March 2020 (4QFY20) than in the quarter earlier, as slowing GDP growth and weak consumer sentiment reduced volumes and led to higher discounts by automakers.”
The sales in all key auto categories fell sharply in 4QFY20 from 3QFY20 when discounts offered by automakers during the festive season helped to slow the downtrend in sales that started in the beginning of 2019. “Auto sales were affected by weak consumer sentiment as quarterly GDP growth slowed over FY20 and buyers' preference to wait for newer, BS6-compliant models,” it stated.
Domestic sales volume of passenger vehicles (PV) fell by 22 per cent year on year in 4QFY20, compared with a decline of 1 per cent in 3QFY20, according to the Society of Indian Automobile Manufacturers. Sales volume of commercial vehicles (CV) and two wheeled vehicles fell by 48 per cent and 25 per cent, respectively, in 4QFY20. Exports of PVs and two wheelers increased by 0.2 per cent and 7.3 per cent, respectively, during FY20, but they could not offset the overall decline in domestic sales.
Fitch stated, “We expect volumes to partly recover in the second half of FY21 as sales gradually increase after the easing of lockdown measures since May. However, overall volumes could decline by more than 20 per cent in FY21 as customers choose to delay spending on big-ticket discretionary items amid a weak economic outlook and due to higher prices with BS6.”
