Second wave of pandemic derails momentum of domestic auto industry recovery: report

MUMBAI: The second wave of pandemic in the country derailed the recovery momentum of the domestic auto industry, which was set to make a comeback in the current fiscal year after witnessing two consecutive difficult years, the rating agency ICRA said Thursday.
Unlike the first wave where infections were largely localized in urban clusters, the second wave experienced deeper and wider penetration, including in rural hinterlands. As a result, the outlook for various segments has been revised downwards, he said.
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While the resumption of the vaccination campaign should support the flattening of the curve in the future, a lengthened recovery cycle or the possibility of a third wave presents other downside risks to the volume estimates of the l ‘ICRA, according to ICRA.
Many original equipment manufacturers (OEMs) and auto accessories have resorted to plant closures to restrictive measure. Car dealerships across Regions were also not operational in light of regional restrictions imposed by various states and local authorities to curb the pandemic, he said.
The agency added that, according to an ICRA memo, although this would lead to short-term supply disruptions in the sector, the larger and prolonged impact is likely due to the impact on various drivers of Requirement.
As a result, the rating agency has downgraded growth estimates for most of the different automotive segments.
According to the ICRA, two-wheeler volumes are expected to be the most affected by segment, with the accessibility and demand of the target consumer segment being strongly affected by the second wave.
As a result, national two-wheeler volumes in 2021-2022 are expected to grow 10-12% now, up from 16-18% earlier. According to CIFAR estimates, the passenger vehicle segment could experience slower growth of 17-20% now, compared to 22-25% forecast earlier.
Overall, the commercial vehicle (CV) segment is expected to grow 21-24% (albeit on a weak basis) in 2021-22 now, compared to 27-30% that was forecast earlier.
ICRA said recovery trends were quite encouraging from the second half of 2020-2021, with various automotive segments reporting a healthy sequential recovery, after lockdown restrictions were eased.
He added, however, that the sudden and severe onset of the second wave of the pandemic in the country has derailed the recovery momentum of auto parts makers and auto accessories to some extent.
Vice-president and group leader ICRA Ratings Shamsher Dewan said: “The second wave of the pandemic, the intensity of which surprised the whole country, is expected to impact short-term auto purchases in all segments.”
In addition, large medical spending has eroded the purchasing power of individuals and families to a greater extent, which would impact large discretionary purchases like vehicles, at least in the short term, he said. declared.
The domestic passenger vehicle (PV) segment would also experience a slowdown in demand due to the spread of the pandemic in the hinterland, impact on disposable income and rising vehicle costs (including the cost of vehicles). fuel). As a result, he will see weaker growth of 17-20% now compared to 22-25% forecast earlier, he said.
In the CV segment, medium and heavy commercial vehicles (M & HVCs) would see a relatively lower impact of the second wave of the pandemic, as construction and mining activities continue largely without impact until present.
However, light commercial vehicles (LCVs) are expected to face some moderation in demand. This is due to the rural impact of the pandemic, the likelihood of funding problems for the segment, and some slowdown in e-commerce demand due to increased restrictions and mistrust, he said. he declares.
The bus segment would also continue to be severely affected due to the erosion of seasonal demand from schools, the increased prevalence of work-from-home practices and poor tourism prospects, in addition to the general aversion to transport. and public spaces, according to ICRA.
Tractors, which had achieved record sales in FY2022 despite the impact of the pandemic, are expected to experience largely flat volumes this year, especially given the strong base the previous year.
In addition, the rural spread of the pandemic would also act as a shock absorber. While the growth prospects mainly depend on the course of the monsoon and the stability of crop prices will provide some comfort in the stability of agricultural cash flows, he said.
Overall, the ICRA expects the segment to end the year with growth of 1-4%, a slight moderation from the 4-6% growth expected earlier, the rating agency.
“While most segments would continue to show year-on-year growth, given the favorable base, growth estimates are revised downwards given the larger and longer-than-expected impact of Wave 2 “, Dewan mentionned.
He added that while the resumption of the vaccination campaign should support the flattening of the curve in the future, a lengthened recovery cycle or the possibility of a third wave offers other downside risks to these estimates.


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