The second wave of the pandemic, coupled with a multitude of headwinds, has played spoilsport for the domestic automotive industry, ICRA Ratings said in a report.
The sector was expected to post a recovery in the current fiscal after witnessing a challenging period in FY20 and FY21 on account of volumes slowing down and pandemic-induced challenges respectively.
“The trends, in fact, had been quite encouraging from the second half of FY21 onwards, with various automotive segments reporting healthy sequential recovery, post relaxation of lockdown-related restrictions,” ICRA said.
Shamsher Dewan, VP and group head, Corporate Ratings, ICRA said, “The sudden and severe onset of the second wave of the pandemic... derailed the recovery momentum of automobile Original Equipment Manufacturers [OEMs] and auto ancillaries.”
“Even as demand across certain segments has recovered well post the dip in infection rate, the industry’s prospects have been affected by key concerns such as hardening in raw material prices as well as supply shortage on account of semiconductor chips,” he said.
“These multiple headwinds have significantly impacted the prospects of the industry, with the recently concluded festive season being the worst the industry has seen in over a decade,” he added.
Among segments, the two-wheeler category has been the most impacted, as affordability and demand sentiment of target clientele had been hit sharply by the second wave. ICRA Ratings said it expected domestic two-wheeler volumes to contract 1-4% in FY22.
It said the demand for passenger vehicles had remained robust; however, this segment had been the worst-affected by the shortage of semiconductor chips, with wholesale dispatches of various OEMs being materially curtailed.
ICRA has revised estimates downwards for the domestic wholesale dispatches for the segment; it now expects the segment to grow by 8-11% in FY22, lower than the earlier estimate of 14-17%.
Within the commercial vehicle (CV) segment, Medium and Heavy Commercial Vehicles (M&HCVs) are likely to continue to draw support from construction and mining activities. The Light Commercial Vehicles (LCVs) segment has seen some demand moderation on account of the rural impact of the pandemic; however, demand for last-mile transportation and from e-commerce firms continue to support volumes, the agency said.
The bus segment continued to be severely impacted; however, sequential recovery is expected.
Overall, the CV segment is expected to grow 18-22% in FY22, ICRA said.
The tractor industry has been the ‘standout performer’ among all segments over the past 18 months. ICRA said this segment would see a modest 1-4% volume growth in the current fiscal, on the back of a high base of the last year.
