Passenger vehicle dispatches likely to decline by 10-12 pc in FY21 : Icra

Domestic passenger vehicle (PV) dispatches are likely to decline by 10-12 per cent in the current financial year due to COVID-19 pandemic, rating agency Icra said on Friday.

Icra said the lockdown will put financial stress on consumer's income level and will result in deferral of non-discretionary items like PVs.

"This is likely to delay industry's recovery prospects by about 6-8 months. The overall wholesale dispatches will decline by 10-12 per cent this year," the rating agency said.

Recovery in rural income and improvement in overall economic activity will remain crucial to have any meaningful improvement in retail demand off-take, it added.

"The domestic PV industry is witnessing a demand slowdown for the last 4-6 quarters due to factors like economic slowdown, tighter financing environment and inventory de-stocking at dealerships; this has affected wholesale despatches. As a result, industry wholesale volumes declined by 17.9 per cent during FY2020," Icra Co-Head Corporate Ratings Ashish Modani said.

PV purchase being a discretionary item, improvement in consumer sentiments and overall growth uptick in economy is crucial to have any meaningful recovery in the industry, he added.

"However, the COVID-19 outbreak has further drastically altered the landscape in the last two months and domestic economy is expected to witness significant shock during Q1 FY2021 due to nationwide lockdown," Modani said.

Icra said it has a negative outlook on the PV sector given the adverse impact and credit profile of industry participants which includesuppliers as well as dealerships.

Retail demand will be weak over the next two quarters and the recovery is likely to be slow and gradual, it added.

In the next 2-3 quarters, Icra expects that retail demand during Q1 FY2021 will remain significantly weak, with some signs of recovery likely towards festive season," Modani said.

The diesel demand will witness sharper decline, post transition from BS-IV to BS- VI due to widening cost differential and narrowing fuel price gap, he added.