Commercial Vehicles segment outlook remains negative, FY21 volumes to drop: ICRA Ratings

ICRA Ratings on Wednesday said the outlook for the commercial vehicles (CV) segment remains 'Negative' on the back of continuing challenges.

It cited factors such as over-capacity, subdued freight availability, financing constraints, amongst others, which have impacted the outlook.

These factors, the ratings agency said, have compounded due to the pandemic, adding that it expects the volumes in FY2021 to contract by 25-28 per cent.

"This would bring industry volumes down to the lowest levels in more than a decade," ICRA said in a report of survey conducted in October, covering 11 states and 26 CV dealers.

"The domestic CV segment was already in the midst of several headwinds in FY2020 and witnessed a steep volume contraction of 29 per cent," said Shamsher Dewan, Vice President, ICRA.

"The industry had been expecting the down-cycle to extend into the current fiscal as well, as increased vehicle prices post transition to new emission norms (BS-VI) would have added to the existing plethora of challenges however, the extent of the contraction has been worse than expected, on account of the challenges brought about by the pandemic."

Dewan said that the existing challenges such as overcapacity in the trucking system, subdued freight availability due to a weak macroeconomic environment, financing constraints, and stress on the cash flows of fleet operators, have all exacerbated with the onset of the pandemic, and the lockdowns imposed to contain the same.

Accordingly, fleet operators have pushed new vehicle purchases to the backburner.

"An overwhelming 85 per cent of the dealers indicated during the survey that sales volumes continued to contract till September 2020; and despite sequential improvement, the current demand environment remains overall muted, as challenges abound in the system," the survey said.

"Further, nearly 73 per cent of the survey respondents indicated towards a further Y-o-Y contraction during the quarter, despite the low base of the previous year. Based on the trends so far, the outlook for Q3 FY2021 remains muted, despite some sequential improvement expected."