India Ratings and Research (Ind-Ra) has published the March 2021 edition of its credit news digest on India’s auto sector. The report highlights the trends in the sub-segments of the auto sector, including passenger vehicles (PVs), commercial vehicles (CVs) and two/three-wheelers (2W/3Ws), with a focus on sales volumes growth, market share movement, change in commodity prices and recent rating actions.
The domestic automobile industry’s sales volume declined 14% yoy in FY21, in line with Ind-Ra’s estimate of a 14%-18% decline for the year. The PV, CV, and 2W sales volumes fell 2%, 21%, and 13% yoy, respectively, in FY21.
The domestic auto industry recorded positive growth for the eighth consecutive month in March 2021. PV and 2W sales volumes were up 115% and 73% yoy, respectively in March 2021, aided mainly by the low base of March 2020. Export volumes also continued the growth trend in March 2021, up 57% yoy, boosted by 63% yoy growth in 2W exports. For FY21, the total exports volumes declined 13% yoy with PV, CV, and 2W exports volume falling 39%, 17%, and 7% yoy, respectively.
The PV segment has benefitted the most from the preference for personal mobility, resulting in the lowest decline among segments; also, lower than Ind-Ra’s expectation of a 5%-8% decline for FY21. Segments such as compact/super compact and mini/micro have performed better than mid-sized/executive/premium cars and van segments, likely due to a higher demand from first time buyers. Also, the demand for utility vehicles continues unabated with the segment growing 12% yoy in FY21 on the back of new launches.
While the 2W segment gained from a healthy rural demand, factors such as delays in opening up of educational institutes, increased cost of ownership due to price hikes and increasing fuel prices coupled with loss of income due to the COVID related lockdown resulted in a demand contraction, especially in the entry level models. The decline in 2W volumes was in line with Ind-Ra’s expectation of a 13%-16% in FY21.
CV demand saw the much-needed traction in 4QFY21, buoyed by a revival in construction demand. Domestic CV wholesale sales volume grew 43% yoy in 4QFY21, boosted by 101% yoy sales growth of medium and heavy goods carriers. Light goods carriers’ sales volumes were up 42% yoy. However, passenger carrier CVs sales volumes declined 55% yoy in 4QFY21, as consumers continued to avoid using public transport. Ind-Ra expects a CV demand revival in 2HFY22 as economic activities improve and due to the lower capacity in the system after consecutive double-digit declines in FY20-FY21. Demand for CVs, particularly medium and heavy CVs, is likely to also benefit from the various government initiatives to help revive the economy. However, the revival of the passenger carrier segment is still some time away.
For FY21, the total retail sales volume fell 34% yoy, led by 17%, 51%, and 34% yoy decline in PV, CV, and 2W retail registrations, respectively. Amid lower discretionary purchases by consumers, PVs remained the saving grace for the domestic retail market. Retail PV sales volumes grew 28% yoy in March 2021. Other segments such as CVs, 3Ws, and 2Ws tell a rather grim story as retail sales declined 42%, 51% and 35% yoy, respectively in March 2021. The double-digit decline in retail sales across segments, except PVs, in March 2021 indicates that consumer sentiment has not fully recovered. Ind-Ra believes that the second wave of covid could pose downside risks to the domestic auto industry demand in the near term.
