CRISIL pegs loss for Commercial vehicle makers at Rs 6,000 cr this fiscal

Commercial vehicle (CV) makers are likely to report Rs 6,000 crore in losses on the back of a continued decline in sales, according to CRISIL.

It says a 30 per cent decline in sales volume, on an already weak base, would lead to a nearly six-fold increase in net loss this financial year.  “This, combined with the stretch in working capital on account of the support extended to dealers and suppliers, could result in sizeable negative cash flows and ballooning debt,” said the rating agency.

CV sales have been hit by new overloading norms and a slowing economy, and the outbreak only worsened matters, leading to a 29 per cent fall in sales volume in FY20. In Q1FY21, volume has plunged a further 85 per cent because of the lockdown. 

Slowdown in industrial activity has hard-braked sales of medium and heavy commercial vehicles (M&HCVs), which account for two-thirds of industry revenue. Sales in light commercial vehicles (LCVs) may fare better, with support from the rural economy and private consumption.

Manish Gupta, senior director at CRISIL Ratings, said two consecutive years of a heavy decline in growth is likely to result in CV volumes reaching its lowest point in a decade. With utilisation down to a third, high fixed costs will dent profitability of CV makers. Further, firms may even absorb the BS-VI upgrade costs partly in order to stimulate demand. This could drive segment operating margins down to near-zero levels, from an already low 6 per cent in FY20, and increase losses.