Covid-19 to pull back India's passenger vehicle and truck market by a decade

MUMBAI: Covid-19 could drag India’s automotive industry back to a time-period when smart-phones were work-in-progress, i-Pods rivaled i-Phones in sales, and 'connected cars' meant a roadside assistance helpline mechanism that worked.
From 3.4 million units at its FY19 peak, the car industry could shrink by a million to 2.4 million units. Two wheeler sales could plunge by 5 million units at the end of FY21, from its peak of 21 million to an estimated 15.5-16 million.

Almost all segments of the Indian passenger vehicle market are set to see a decline over 10-15% in 2020-2021, forecasts by Crisil Rating, ICRA Ratings, IHS Markit and Jato Dynamics showed, with the lockdown suffocating discretionary purchases through the first half of the year.

Hetal Gandhi, Director, CRISIL Research, told ET, that the auto sector could be pulled back anywhere between 3 and 10 years, depending on the segment. Segments like cars and UVs as well as commercial vehicles could reach sales levels of FY11, while two-wheelers could reach the sales levels of FY15.

“The automobile industry was hit hard in fiscal 2020 as sales fell across vehicle segments. The outbreak has cast a long shadow over a much-anticipated mild recovery in the Indian economy in fiscal 2021. We expect Q1FY21 to be significantly impacted from both supply side as well as demand side, due to plant shutdowns as well as subsequent lower demand as people tackle the pandemic,” added Gandhi.

Historically, it has been seen in several countries that premiumization led personal mobility growth typically pick up after per capita income breaches $2800 level mark. India’s per capita income is estimated to be $2143 at the end of March 2020. As GDP growth drops to a multi-year low in FY21, the per capita expansion will be slower than earlier projections, crimping margins.

Within automobile segments, commercial vehicle industry, which was hit the hardest in fiscal 2020, would be the worst hit in fiscal 2021. The nationwide lockdown has hit freight demand and transporters are expected to see a significant drop in their income. Lower private consumption and availability of redistribution freight will hit demand for light commercial vehicles as well.

The government’s ability to push infrastructure and even fund bus purchases is constrained.

In two wheelers, demand from rural areas is expected to be better than urban markets due to better rabi prospects. However, delay in harvesting caused by labour shortage due to the lockdown and prices received by farmers for their produce remain key variables.

In FY20, the sector recorded its worst annual volume decline for the two-wheelers and passenger cars, while the medium and heavy commercial industry saw the worst fall in the history, according to Jefferies.

The volume growth in the first quarter is likely to be a washout due to lockdown. Even after lockdown is lifted, there could be lower footfall at retail outlet for few months as fear psychosis creeps among consumer. The auto volume is expected to fall 35-45% in the first quarter of the financial year. The first-quarter volume accounts for 23-26% of the total volume for the auto-makers.

“We cut FY21 growth estimates for various vehicle sub-segments by 10-15% resulting in decline now vs growth earlier,” said a note from Credit Suisse.