Auto sector may witness double-digit growth in 2021

Automobile sales in India are poised to grow in double-digits in 2021, rebounding from the 15-20% drop last year, when the industry faced widespread disruptions from the pandemic.

Sales are expected to get a boost from a faster-than-expected recovery in economic activity and vaccination drive against covid-19, said industry executives and analysts. Increased preference for personal mobility is also likely to push sales of affordable cars and two-wheelers. Commercial vehicle sales are expected to recover after two years as government-funded infrastructure projects gather pace.

This will also benefit auto parts makers whose sales are expected to grow in double-digits following increased demand from automobile manufacturers as well as in the after-market segment. “While temporary disruptions will impact production and sales in FY21, demand is showing signs of sustenance, supported by rural cash flows, demand for personal mobility, and easy liquidity in the market. The industry has reduced expenses on all other cost heads in H1FY21, and a part of this benefit will be carried forward in coming quarters also,” according to credit rating agency Icra.

Vinkesh Gulati, president, Federation of Automobile Dealers Associations (Fada) said since the lockdown was lifted, the industry has been witnessing one of the best ‘V’ shaped recoveries in years, aided by good monsoons and better harvest, festive demand and wedding season.

“Lately, we have seen good pent-up demand in passenger vehicles and hopefully, it will stay as safer mobility and new launches this year will keep the demand going. While the industry will witness an overall decline of around 20-25% on a financial year basis, things will start looking better from April, aided by lower base of last year,” Gulati said.

Rajesh Menon, director general of the Society of Indian Automobile Manufacturers, said the industry saw one of the steepest downturn in years during Q1 due to strict measures. During this period, domestic sales plunged 75% from the year earlier to 1.5 million units, causing the industry to suffer revenue losses of over ₹2,300 crore each day.

Icra estimates auto parts industry’s revenue to grow by 16-18% in FY22, supported by increasing content per vehicle, low base effect and higher realizations, partly from the pass through of the commodity price hike. However, higher freight rates along with a shortage of parts may remain a challenge.

“The sentiment remains positive though there are concerns about availability of raw material and increase in commodity prices. As the unlock continues there will be more demand in the rural and urban markets. In FY22, vaccines for covid-19 will also be available which will help generate more demand. After two years, we are expecting recovery in business next year,” said Deepak Jain, president, Automotive Component Manufacturers Association.

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