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Coronavirus: Commercial automobile gross sales prone to contract 8-10% additional in FY21, says ICRA

New Delhi: Ratings company ICRA on Wednesday stated industrial automobiles (CV) gross sales volumes in India are prone to contract additional between 8-10 per cent in 2020-21 because the close to time period outlook of the sector is weighed down considerably by the coronavirus pandemic. The company stated it continues to keep up a detrimental outlook for the CV phase over the near-term citing “slowing economic growth, current overcapacity in the CV ecosystem and not so benign financing environment, with challenges further aggravated by the recent and rapid spread of novel coronavirus in India”.

“The demand headwinds are expected to continue over the near-term given the macroeconomic challenges in view of the recent pandemic outbreak coupled with weakening financial profile of fleet operators and significant price hikes because of transition to the BS-VI emission norms,” ICRA stated in an announcement.

This would exert strain on earnings and total credit score profile of CV OEMs, which have witnessed sharp earnings contraction over the previous 3-Four quarters, it added.

Commenting on the scenario, ICRA Vice President Shamsher Dewan stated extra capability created within the system put up revision of axle load norms in July 2018 and quicker turnaround of auto put up GST implementation, coupled with slowdown within the financial system and infrastructure initiatives and the resultant decrease freight availability proceed to weigh on the demand prospects.

“Furthermore, the rapid spread of coronavirus and the lockdown imposed in the country has had a significant impact on goods movement and freight availability over recent weeks and may continue over the near-term,” he added.

Accordingly, the outlook for the following fiscal, particularly the primary half, stays weak given the macroeconomic headwinds in view of current pandemic outbreak coupled with vital value hikes due to transition to the brand new emission norms, Dewan stated.

“Any recovery in the latter half hinges on pick-up in construction activity. However, despite some channel inventory filling measures of OEMs, M&HCV (Truck) sales are expected to close the upcoming fiscal with further decline of 12-14 per cent during FY2021,” he added.

On the opposite hand, regardless of restoration expectations through the latter half, the sunshine industrial automobiles truck phase is anticipated to contract additional by 7-9 per cent throughout FY2021, ICRa stated, including extended disruptions resulting from current coronavirus outbreak poses additional draw back dangers to this.

The passenger service phase can be anticipated to report demand contraction within the subsequent fiscal, the scores company stated including, “accordingly, ICRA expects the (overall) segment volumes to contract by 8-10 per cent during fiscal year 2021”.

“…the recent pandemic outbreak remains a significant unknown which can have a bearing on the economy and CV sales over the near to medium term. “ICRA believes an enchancment within the financial surroundings and backbone of liquidity constraints stay essential for a sustained revival within the trade. In absence of both, we preserve a subdued outlook for the trade for the following fiscal.” Dewan stated.

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