The two-wheeler industry is likely to witness another year of demand contraction with sales expected to decline by 11-13% to around 18 million units in FY2021 due to the impact of the COVID-19 pandemic on economic growth and discretionary spending, rating agency ICRA said.
Flattish demand
Even prior to the outbreak, the demand for two-wheelers was expected to be flat in India amid a sharp rise in vehicle prices following the transition to BS-VI emission norms, resulting in 10-12% inflation and a subdued macroeconomic scenario, the agency noted.
“The challenges for the industry are likely to get aggravated as consumer spending will be severely impacted by the outbreak, resulting in lower spending power both in urban and rural markets. There is a likelihood of downtrading by consumers as well once the economy starts to crawl back to normalcy,” it added.
Shamsher Dewan, vice-president, ICRA said, “We expect two-wheeler OEMs to brace for another year of lower earnings and decline in operating margins, to 11.5-12% from around 14% in the previous year.”
Mr. Dewan added that besides lower sales, pressure on earnings will also arise due to costs involved in recalling BS-IV inventory from dealers, which is likely to remain unsold due to shutdowns. Additionally, during periods of stress, OEMs would also have to extend credit support to its dealers, thus leading to a potential increase in working capital intensity.
ICRA added that given the rapid spread of the pandemic in India and overseas, and the possibility of further extension of lockdowns, revival from the down-cycle is expected to be delayed by at least a few quarters.
