Mumbai, Oct 14 (PTI) India's luxury car market is likely to contract over 40 per cent this calendar year though demand in the passenger vehicle segment is slowly returning to normalcy, ratings agency ICRA said on Wednesday.
Stating that long-term demand drivers remain intact, ICRA said industry volumes are expected to witness strong double-digit growth, more than 15 per cent, in the financial year 2021-22 after two consecutive years of decline.
The ratings agency has, however, upwardly revised its earlier 3-4 per cent growth forecast for the tractor industry to 7-9 per cent in 2020-21, with downside risk emanating from spells of unfavourable rainfall leading to crop damage and supply chain disruption if any.
Luxury car volume may decline over 40 per cent in the current year as industry is already grappling with demand pressure, ICRA said.
'The luxury car segment will witness a decline of over 40 per cent in the current financial year. Its penetration in India is the lowest among large economies, thereby providing long-term growth visibility,' ICRA Vice-President Ashish Modani.
He, however, added that higher taxes on completely built units and completely knocked down kits is a key deterrent for luxury car makers as local manufacturing is not lucrative due to low volumes.
The total luxury car sales in 2020 are expected to be around 21,000 units as against 35,000 cars sold last year, ICRA said.
Significantly, after reporting a 38 per cent drop in sales in the first quarter of the calendar year 2019 and a whopping 79 per cent decline in the June 2020 quarter, market leader Mercedes-Benz India on Wednesday reported a 38.64 per cent fall in sales at 2,058 units in the September 2020 quarter as against 3,354 units in the third quarter of 2019.
Another major player BMW has only announced the March 2020 quarter sales numbers so far during which the volumes declined 16.19 per cent over the year-ago period.
The Indian automotive industry is battling tough times due to a general economic slowdown coupled with the coronavirus-induced lockdowns, said ICRA.
It expects the gross domestic product (GDP) to decline 11 per cent in 2020-21, which will trickle down into lower demand for the automotive industry in general, except tractors.
Within the industry, the passenger vehicle (PV) industry is expected to witness 22-25 per cent decline in volumes in 2020-21, ICRA said.
It added that the industry segment's fortunes are tied with the GDP growth rates and overall consumer sentiments, which are currently at historic lows; and this recessionary environment has resulted in purchase deferrals.
While the industry was hit hard in the first quarter of 2020-21, most PV and two-wheeler manufacturers started operating at pre-COVID-19 level capacity utilisation during September, ICRA stated.
According to the ratings agency, the fall in demand is also being reflected in capacity utilisation, which is likely to dip below 45 per cent in 2020-21, from 50-55 per cent in 2019-20.
'We expect capex (capital expenditure) cut by 35-40 per cent during FY2021-FY2022, and incremental investments will be primarily towards new product development and platform improvisation,' ICRA said.
It added that on the positives, the industry's long-term drivers are intact but compared to the Chinese and other key global markets, the domestic market is witnessing a slower-paced recovery 'There is an increased risk aversion in retail as well as wholesale financing, which is a deterrent. The rural market will be the key driver of volume in 2020-21 which will benefit entry-level cars and UVs (utility vehicles),' Modani said.
He added that buyers may opt for two-wheelers or used cars to avoid public transport. 'The share of diesel vehicles is expected to decline below 40 per cent in UVs in the next two years, and some manufacturers have already exited the diesel portfolio completely.' ICRA's channel check suggests that retail as well as wholesale financing is facing pressure and delinquencies are increasing, though real trend is masked due to moratorium opted by customers, it stated.
Demand growth in the commercial vehicles industry fell 85 per cent in the first quarter of 2020-21, severely impacted by extended lockdown across the country which curtailed movement of goods, it said.
As for the outlook, the M&HCVs and buses segment growth will decline to (-)35 per cent to (-)40 per cent in 2020-21 and will grow 40-45 per cent in 2021-22, while light commercial vehicles (LCVs) will witness a slower decline of (-)17 per cent to (-)20 per cent and grow 15-20 per cent during the period.
As far as tractors are concerned, ICRA expects 7-9 per cent growth in 2020-21 with downside risk emanating from spells of unfavorable rainfall leading to crop damage and supply chain disruption if any. PTI IAS HRS