Covid 2.0 dampener on auto industry recovery

Covid 2.0 dampener on auto industry recovery
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Covid 2.0 dampener on auto industry recovery 

Highlights

An elongated recovery cycle expected despite the vaccination drive: ICRA

Mumbai: The second wave of the pandemic in the country has derailed the recovery momentum of the domestic auto industry, which was poised for a comeback in the current fiscal after witnessing the two consecutive challenging years, ratings agency ICRA said on Thursday. Unlike the first wave where infections were largely localised to urban clusters, the second wave has seen deeper and wider penetration, including into rural hinterlands. Accordingly, outlook for various segments has been revised downwards, it said.

While pick-up in the vaccination drive is expected to support flattening of the curve going forward, an elongated recovery cycle or possibility of a third wave offers further downside risks to ICRA's volume estimates, according to ICRA. Many auto original equipment manufacturers (OEMs) and auto ancillaries resorted to plant shutdowns as a restrictive measure. The automotive dealerships across regions have also not been operational in light of regional restrictions imposed by various States and local authorities in order to curb the pandemic, it said. The agency added that as per an ICRA note, while these would cause near-term supply disruptions in the sector, the larger and prolonged impact is likely to be on account of the impact on various demand drivers. Accordingly, the ratings agency has revised the growth estimates for most of the different automotive segments downwards.

Segment-wise, ICRA said, the two-wheeler volumes are expected to be the most impacted, with the target consumer segment's affordability and demand sentiment sharply hit by the second wave. Accordingly, domestic two-wheeler volumes in 2021-22 are expected to grow 10-12 per cent now as against 16-18 per cent earlier. The passenger vehicle segment may see a lower growth of 17-20 per cent now as against 22-25 per cent expected earlier, as per ICRA estimates. Overall, the commercial vehicle (CV) segment is expected to grow 21-24 per cent (albeit on a low base) in 2021-22 now, compared with 27-30 per cent that was expected earlier.

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