Downward forecast on auto sales

Volumes may rise 16% this fiscal as against earlier prediction of 20%: Report

Mumbai: Auto volumes are expected to rise 12-16 per cent year-on-year (Y-o-Y) this fiscal, as against the earlier estimate of 16-20 per cent, India Ratings Research (Ind-Ra) said in its latest auto outlook.

The growth estimate has been revised downward on account of a revision in the growth forecasts for two-wheelers (2Ws) and passenger vehicles (PVs), Ind-Ra said. The 2Ws segment is now expected to log 10-14 per cent growth compared to the initial projection of 16-20 per cent, and the PV volumes segment may rise 15-18 per cent from the earlier forecast of 18 -22 per cent, it stated.The growth forecast for commercial vehicles (CVs) is maintained at 20-25 per cent Y-o-Y, as per the report.

The rating agency also said it has maintained an improving outlook for the auto sector for FY22, as the revival across segments is expected to continue in H2 FY22. The revival is likely to be aided by a recovery in consumer sentiments, increased preference for personal mobility and macroeconomic tailwinds, it said.Adding rising fuel prices and another price hike by OEMs amid increasing input costs, continued supply chain constraints and any subsequent Covid waves could act as possible headwinds for the sector.

The downward revision in 2W volumes is mainly on account of reduced disposable income, especially of the buyers of entry-level segment amid the widespread impact of the Covid-19 second wave, deferral in reopening of colleges and workspaces, thus limiting travel as well as increased cost of ownership, Ind-Ra said. While the demand fundamentals for PVs remain strong, growth would be constrained by supply chain challenges, especially the shortage of semiconductors, it said.

CVs could record high double-digit growth in FY22, despite the impact of the Covid-19 second wave, following a rebound in the indicators of economic activity in Q2 FY22. Ind-Ra also expects exports to grow in line with or marginally better than domestic sales growth in FY22. It expects limited rating movements in the sector in FY22 and has thus maintained a stable rating outlook. It also maintained its growth estimate for industry revenues at 16-20 per cent Y-o-Y during FY22, as the lower volumes would be set off by the price increases undertaken by original equipment manufacturers (OEMs).

However, the rating agency expects EBITDA margins to decline by 30-80 basis points Y-o-Y in FY22, mainly due to higher commodity prices and sourcing costs amid supply chain challenges. These are likely to be passed on to customers by OEMs, although with a time lag. The decline would also be partly offset by improving operating leverage and lower discounts, it said.

Ind-Ra has maintained an improving outlook for the auto ancillary sector for the second half of this fiscal and assigned a stable outlook on its rated portfolio for H2 FY22, as per its outlook on the auto ancillary sector.The rating agency expects the sector revenues to grow 18-20 per cent Y-o-Y in FY22, supported by strong growth in demand fromOEMs and the export market.