Negative outlook for commercial vehicle industry

Noted credit rating agency ICRA, in a recently released report, has maintained negative outlook for the commercial vehicle (CV) segment over the near-term. The agency has cited a host of stress factors for the business including financing availability, macroeconomic environment, regulatory developments,  fleet operator health and coronavirus led disruptions in the marketplace.

“The only limited green shoot visible is the uptick in rural demand, which augurs well for the LCV (Truck) segment, although ability to recoup lost sales of Q1 FY2021 remains to be seen. Accordingly, the domestic CV industry volumes are expected to contract further by 25-28% in FY2021, which would bring industry volumes to the lowest levels in more than a decade. Although ICRA believes growth would be optically better in FY2022 at 24-27%, the recovery to industry volumes of even FY2017 levels would remain some time away.Overall, these headwinds are expected to exert pressure on earnings and credit profile of CV OEMs, which have witnessed sharp earnings contraction over the past 4-5 quarters,” the report said.

According to Shamsher Dewan, Vice President, ICRA, “In particular, the M&HCV (Truck) segment would continue to face significant demand contraction in FY2021. The challenges related to freight availability and stress on fleet operators have compounded significantly over the past 3-4 months on account of the pandemic outbreak and lockdown imposed to curtail it. Accordingly, notwithstanding the sharp contraction of 47% in FY2020, the segment volumes are expected to contract further by 35-40% during the current fiscal.”

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