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Covid-19 to result in worst passenger vehicle sales in 10 years

BusinessToday.In     June 11, 2020

The passenger vehicle sales are expected to shrink to decadal low in fiscal year 2020-21 amid ongoing coronavirus crisis, according to a report. The sales volume along with exports may fall by 22-25 per cent in the ongoing fiscal to a decadal low of nearly 26.5 lakh units, CRISIL Ratings said in the report. It would be the second straight year of double-digit volume plunge after the 15 per cent fall seen in FY20.

However, it may not much impact the credit quality of the majority of passenger vehicle makers owing to their strong balance sheets and adequate liquidity, the report added. Even support from a strong parent or group is also expected to help the companies to navigate the rough terrain in some cases, it added.

"Withmuted income growth, discretionary spending will take a backseat this fiscal. Small PVs and used vehicles will find favour owing to better affordability. Also, given increasing awareness about social distancing, consumers may reduce, if not avoid, travel by public, pooled and shared transport in the short term. However, the benefit from the change in commuting-pattern will only partly offset the steep downturn," Anuj Sethi, Senior Director, CRISIL Ratings, said.

CRISIL has assumed about 60 per cent fall in domestic dispatches in the first half of this fiscal. It is in line with the staggered opening of dealerships from May 2020 followed by a 6 to 8 per cent rebound in the remaining half of the fiscal due to improved rural demand.

The ratings agency also said that customers may now begin to bet on used vehicles and new small passenger vehicles in FY21 as a fallout of the coronavirus pandemic.

"The eight PV makers had about Rs 50,000 crore of surplus liquidity as of March 2020, which will help them tide over these difficult times. Also, the average debt-to-Ebitda of these players is estimated at about 1.1 times at the end of fiscal 2020. This ratio is likely to go up, but remain adequate at close to 2 times by the end of fiscal 2021, supported by pruning of capital spend by at least about 25-30 per cent," Aparna Kirubakaran, Associate Director, CRISIL Ratings said.

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