ICRA, Auto News, ET Auto
New Delhi:Following a weak festive season performance for the auto industry, ICRA Ratings on Monday said it expects the domestic two-wheeler (2W) volumes to contract by 1%-4% year-on-year in FY22.
“This is further confirmed by the fact that the domestic volumes of 8.05 million in the 7 months in FY22 are flattish on a Y-o-Y basis despite a severely contracted base,” it said.
According to ICRA, the rural offtake has lagged urban, possibly due to moderated agri-sentiments caused by uneven monsoons and delayed harvesting across regions. In the urban markets, the delay in reopening of schools and colleges, weak income sentiments due to job losses or salary cuts (in the aftermath of the pandemic) and extended work-from-home policies by corporates have impacted sales.
Rohan Kanwar Gupta, vice president and sector head, Corporate Ratings, ICRA, said, “The entry-segment (75-110cc), which dominates 2W sales in India, has remained subdued this year, reflecting extensive (and extended) impact of the second wave of the pandemic. The lacklustre festive season performance also highlighted the continued wariness among the low-income population regarding big-ticket purchases.”
“Income uncertainties caused by job losses, salary cuts or limited increments, while facing Covid-related medical expenses (actual or anticipated) and skyrocketing cost of 2W ownership, have led to purchase deferrals this festive season. Given the muted sales, the inventory at dealerships is also relatively high, which could mean only a marginal, if any, traction in wholesale volumes in the remaining months of FY22,” he said.
The financiers have remained cautious, after witnessing an increase in delinquency levels. While the demand for premium 2Ws, which comprise ~15% of the overall domestic volumes, fared better, the OEMs faced supply constraints due to semi-conductor shortages. Overall, given the existing inventory at dealerships post-festive season (40-45 days), a high growth in wholesale dispatches in the remaining part of the fiscal is unlikely, ICRA noted.
“On the financial front, given the high operating leverage of the industry, subdued demand and elevated raw-material costs are expected to keep the operating margins constrained for the 2W OEMs in the current fiscal. However, these will likely be supported by price escalations and cost rationalisation initiatives,” Gupta said.
The credit profile of 2W OEMs would continue to remain healthy, supported by strong balance sheets with high net worth, limited debt and sizeable cash and liquid investments. While Capex would be higher than the FY21 levels, major expansion plans are expected to be deferred till a meaningful demand recovery.
The OEMs will continue to invest in new product development, new technologies (including electric vehicles) and network expansion in both the domestic and the overseas markets.