PV sales expected to plunge by 22-25% in FY21: Crisil

Ratings agency Crisil expects passenger vehicles sales' volume, including exports, to plunge by 22-25 per cent this fiscal to a decadal low of 26.5 lakh units.

The fall in off-take will mark the second straight year of double-digit volume decline after the 15 per cent fall seen in fiscal 2020.

However, the ratings agency said that credit quality of most passenger vehicle makers (OEMs) would remain stable because of strong balance sheets and healthy liquidity.

In some cases, support from strong parent or group will help navigate the rough terrain, it said in a statement.

Crisil analysed eight PV makers accounting for 80 per cent of industry sales volume.

The agency rates six of these, which accounted for 73 per cent of the sales volume in fiscal 2020.

"Crisil has assumed 60 per cent fall in domestic dispatches in the first half of this fiscal in line with staggered opening of dealerships from May 2020, followed by a 6-8 per cent revival in balance half of the fiscal, driven largely by improved rural demand," Crisil said in a statement.

"This along with 15 per cent drop in export volumes will lead to 22-25 per cent fall in overall sale volume in fiscal 2021."

Another fallout of the pandemic, will result in increased preference for used vehicles and new small PVs in fiscal 2021, after demand had swung in favour of affordable sports utility vehicles in the past 2-3 years.

Furthermore, the statement said that operating profitability of PV makers will be curtailed this fiscal because of production loss during the lockdown, fixed overheads and lower operating rates, notwithstanding soft input prices and pruned marketing spends.

"PV makers will continue offering discounts through the first half, and partly absorb higher cost of BS-VI (Bharat Stage VI) variants given tepid demand," the statement said.

"The impact of this will be 150-200 basis points, with operating profitability settling at 6-7 per cent this fiscal for the sample set, owing to low operating leverage, with 80 per cent of cost pertaining to raw materials."

In addition, Crisil said the extent of the Covid pandemic, and ability of the component supply chain and automotive dealerships to stabilise operations will remain key monitorables.

( With inputs from IANS )