Raging pandemic to decelerate recovery of automotive industry: ICRA

The sudden and severe onset of second wave of Covid-19 pandemic in the country has derailed recovery momentum of automobile original equipment manufacturers (OEMs) and auto-ancillaries to an extent, investment information firm ICRA said on Thursday.

Not only have they resorted to plant shutdowns as a restrictive measure but also automotive dealerships across regions have not been operational in light of regional restrictions imposed by various states and local authorities in order to curb the pandemic.

While these will cause near-term supply disruptions in auto sector, the larger and prolonged impact is likely to be on account of impact on various demand drivers.

Accordingly, ICRA has revised growth estimates for most different automotive segments downwards.

"Unlike the first wave, where infections were largely localised to urban clusters, the second wave has seen deeper and wider penetration including into rural hinterlands," said Shamsher Dewan, Vice President and Group Head at ICRA Ratings.

"The significant medical spends have eroded purchasing power of individuals and families to a greater extent, which will impact large ticket discretionary purchases like vehicles, at least over the near term," he said.

Within different industry segments, two-wheelers are expected to be the most impacted with the target consumer segment's affordability and demand sentiment sharply hit.

Accordingly, domestic two-wheeler volumes in FY22 are expected to grow by 10 to 12 per cent now as against 16 to 18 per cent earlier.

ICRA said the domestic passenger vehicle segment will also see a softening of demand due to the spread of pandemic to hinterlands, hit on disposable income and rising vehicle costs (including fuel cost), and accordingly will see a lower growth of 17 to 20 per cent now as against 22 to 25 per cent expected earlier.

The commercial vehicle segment is expected to grow by 21 to 24 per cent (albeit on a low base) in FY22 now as compared to 27 to 30 per cent that was expected earlier.

ICRA expects the tractor segment to close the year with 1 to 4 per cent growth, a slight moderation from the 4 to 6 per cent growth expected earlier.

"While pick-up in the vaccination drive is expected to support flattening of the curve going forward, an elongated recovery cycle or possibility of a third wave offers further downside risks to these estimates," said Dewan.

( With inputs from ANI )

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