Commercial vehicle industry to remain subdued for rest of FY20: ICRA

The rating agency ICRA in its latest report has said its outlook for the Indian commercial vehicle industry remains negative for the rest of the current fiscal year (FY20) largely due to subdued sales amid slowing economic growth and tight financing environment. It believed that demand headwinds would continue in the near-term with likelihood of limited pre-buying ahead of the implementation of Bharat Stage VI (BS-VI) emission norms.

According to the report, given the high inventory levels at dealerships and subdued retail sales, original equipment manufacturers (OEMs) are focusing on rationalising the inventory in the system prior to the roll-out of new emission norms, which would render unsold inventory of existing BS-IV vehicles as obsolete. Hence, it pointed out that wholesales dispatches are not expected to increase materially over the latter half of the fiscal.

The report further stated that sales of commercial vehicles will decline 10-12% in the current financial year which, coupled with elevated level of discounts offered by OEMs, will exert pressure on earnings and credit metrics of OEMs in the near-term. It said the slowdown in the domestic commercial vehicle industry, which started in the second half of FY2019, has accentuated during the current fiscal with volumes contracting by a sharp 19 percent during April-August 2019 on a year-on-year basis. It added that the volume contraction has worsened as the year progressed with CV OEMs cutting down on their wholesale dispatches by 33 per cent during July-August period of this year to pare down inventory levels at dealerships in light of subdued footfalls and retail sales.