India Ratings and Research (Ind-Ra) has published the May 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.
Ind-Ra believes that the widespread and severe business impact of the second covid wave in May 2021 have led to further deterioration in sales. Major PV and 2W original equipment manufacturers (OEMs) advanced maintenance shutdowns to May and undertook plant shutdown for 10 to 14 days, amid state-wise lockdown related restrictions as well as dampening consumer sentiment. Majority of automotive dealerships have either closed or limited their operations, limiting clearance of existing inventory. Also, supply-side constraints due to localised lockdowns in several states for almost the entire month has affected sales.
The domestic automobile industry’s sales volume declined 65% mom in May 2021 (79% decline from May 2019), despite of a lower base, following a 30% mom fall in April 2021, which was also impacted by lockdowns, albeit in key states and towards the latter part of the month. The PV and 2W sales declined by 66% and 65% mom (fall of 63% and 80% from May 2019), respectively, in May 2021. Domestic 3Ws demand was almost wiped out with a decline of 91% mom amid a further reduction in preference for shared mobility. The growth trend in exports volumes was also disrupted in May 2021, with volumes declining by 16% mom (increase of 10% from May 2019).
As the manufacturing activities at most of the OEMs plants have resumed, Ind-Ra expects the industry, and PV segment in particular, to record a month-on month increase in sales volume June 2021.The total production (excluding CVs) decreased 57% mom, due to a 58% mom decline in the production levels of PVs and 2Ws, in May 2021. 3W production was 73% of April 2021 levels, as the steep decline in domestic demand was partly set off by a somewhat stable export demand, which declined by just 4% mom. Retail sales also declined in May 2021 - with PV and 2W volumes declining 59% and 52% mom, respectively, reflecting further deterioration in consumer sentiments and continued closure or limited operations of majority of the dealerships. Inventory at the dealership levels for PVs increased to normal levels of 20-25 days in May 2021 (April 2021: 15-17 days; March 2021: 10-15 days).
Ind-Ra expects that the increase is due to limited sales in May 2021 as dealerships were closed for a long duration as well as OEMs’ replenishing inventory with dealers in anticipation of a higher demand in June 2021.Inventory at 2W dealerships declined to 25-30 days (April 2021: 30-35 days; March 2021: 30-35 days) due to the plant shutdowns undertaken by large players.
Ind-Ra expects sales for June to witness healthy growth compared to May 2021, aided by the pent-up demand with the gradual lifting of localised lockdown restrictions along with reopening of manufacturing facilities of OEMs and a steady decline in daily new covid cases.
