Commercial vehicle makers in India face $800 mil. loss as pandemic exacerbates demand woes

21, Aug. 2020

An undated file photo of a truck manufactured by Daimler India Commercial Vehicles. (Photo courtesy of Daimler India Commercial Vehicles)
An undated file photo of a truck manufactured by Daimler India Commercial Vehicles. (Photo courtesy of Daimler India Commercial Vehicles)

NEW DELHI, NNA- Commercial vehicle (CV) makers in India are likely to suffer a nearly six-fold jump in net loss to 60 billion rupees ($800 million) this fiscal year due to a second consecutive year of steep sales decline as the pandemic curbs already weak demand.

According to the latest report by credit rating agency Crisil Ltd. released Thursday, CV sales are expected to plunge 30 percent to 506,000 units in the current fiscal year ending March 2021. Sales fell 29 percent last year, hit by new overloading norms and a slowing economy.

The latest decline in sales volume comes on an already weak base, the report said, which will lead to higher net losses for CV manufacturers.

Crisil, a unit of Standard & Poor’s Financial Services LLC, said that in the April-June quarter, CV sales volume skidded 85 percent amid the pandemic lockdown, which severely affected sales of medium and heavy commercial vehicles (trucks) that account for two-thirds of CV industry revenue.

“Two consecutive years of high de-growth are likely to result in CV volume reaching its lowest point in 10 years,” Manish Gupta, senior director at Crisil, said in a statement.

The looming net losses combined with a stretch in working capital to support dealers and suppliers could result in sizeable negative cash flows and ballooning debt, Gupta said.

Ratings agency ICRA Ltd. also projected CV sales volume to contract by 25 to 28 percent this fiscal year and recently maintained a negative outlook for the CV segment over the near term. Headwinds continue from multiple fronts, it said, including financing availability, macroeconomic environment, regulatory developments and fleet operator health.

“The situation has been further aggravated by the rapid spread of novel coronavirus in India. Demand headwinds are expected to continue over the near-term given the macroeconomic challenges in view of the pandemic outbreak,” ICRA said in a report dated July 30.

According to ICRA, the truck segment in particular would continue to face significant demand contraction during the current fiscal.

The Society of Indian Automobile Manufacturers’ latest data shows that truck sales slumped 94 percent to 4,403 units in the first quarter of the current fiscal year, from 74,333 units during the same period last fiscal year.

ICRA also said that the COVID-19 pandemic and subsequent restrictive measures implemented by the central and state governments to contain the disease has adversely impacted the prospects of the Indian logistics sector, especially the road freight transportation movement considered key to CV demand.

With intermittent lockdowns still in place in some places and muted recovery anticipated in the industrial activity, the logistic sector is likely to witness sharp demand contraction in the near-term, ICRA said in a report earlier this month, in which it downgraded its outlook on the sector to “negative” from “stable.”

India, currently the third-most corona-affected country in the world, recorded a total of 53,866 deaths and over 2 million confirmed cases of COVID-19 as of Thursday.