Auto sales to decline sharply across segments this fiscal

PUNE: The slowdown in the automobile industry, some of which have continued from FY19 and intensified in FY20, would result in a sharp decline across segments. However, tractor volumes, recovering in August 2019, has brought some cheer to the industry due to an improvement in monsoons and Kharif sowing, along with an early festive season. Tractors had clocked a 14 per cent decline during April-July.

Even as Fitch Solutions Macro Research slammed the government’s stimulus package for the automobile sector as "too little, too late", industry honchos say sales would start gaining momentum after 12 months of slump.

An Icra research report on Thursday said sales of passenger vehicles (PV) would decline 21.6 per cent and medium & heavy commercial vehicles (M&HCV) truck segment 24.1 per cent during first four months of FY20 is likely to impact the industry’s full year volume growth and performance.

It said the PV sales decline would be in the range of 4-7 per cent and M&HCV trucks would drop in the 0-5 per cent range in FY20. The report said the Ebitda margins would likely moderate for all major PV OEMs, due to negative operating leverage.

However, cumulative revenues are estimated to decline marginally, as the decline in volumes will be largely offset by increasing realization (due to premiumisation, regulatory impact on car prices – BS6, safety norms etc).

In Q1FY2020, most OEMs and their vendors witnessed moderation in profitability due to negative operating leverage, partially offset by tailwinds in commodity prices.

“In the short-term, much would depend on the meaningful demand recovery post monsoons, especially given the fact that many parts of the country have witnessed flooding,” Subrata Ray, Senior Group Vice President at Icra told Financial Chronicle.

Agricultural output, revival in economic and industrial growth would be critical. It however remains to be seen how the auto demand recovers during the festive season and the likely pre-buying in Q4 in anticipation of post-BS VI price hikes, Ray said.

The recent steps announ-ced by the government are a positive for the sector. “The liquidity support announced for the banking system and the government spend on infrastructure can be a significant catalyst for the automotive industry,” Ray said.

In the long-term the demand drivers would be increasing disposable income, poor public transport infrastructure and increasing financing penetration, he said.

“We are now seeing green shoots in tractor sector. Our channel checks in states such as Uttar Pradesh, Madhya Pradesh, Haryana and Gujarat indicate an improvement in volumes,” Raghunandhan NL, Senior Analyst at Emkay Global said.