Commodity prices at all-time high are leading to higher input costs adding to the challenges faced by Indian auto manufacturers. Rating agency ICRA has revised its outlook for passenger vehicle growth to 17-20pc from the prior 22-25pc in FY2022. Major Indian automakers have raised vehicle prices over the last few months, stated ICRA in its report. Several other reasons are also hurting the auto sector and recovery is likely to be challenged in the current environment.
Steel prices are likely to remain high in the first half of the current fiscal year and are likely to soften in the second half, says ICRA. Despite softening of prices in the second half of the fiscal, average prices would still be at a multi-year high.
Aluminium prices are forecast to remain at multi-year highs in the short term, but prices will soften as supply eases, ICRA said. Copper prices have rallied to an all-time high and are likely to maintain the levels for the next few months before prices come down. During FY2022, copper prices will be high, according to ICRA.
Keeping in mind the disruptions on both the demand and supply side, ICRA has revised the outlook for major auto segments downwards. In FY2022, India’s two-wheeler sales forecast has now been downgraded to growth of 10-12pc from the previous 16-18pc forecast against FY2021. Passenger vehicles sales is revised down to grow at 17-20pc from 22-25pc growth. Commercial vehicle sales is projected to grow 21-24pc from 27-30pc as projected earlier. Tractor sales are expected to increase by only 1-4pc from 4-6pc.
Surge in COVID-19 cases
Rising COVID-19 cases have induced complete lockdowns in many states which account for high auto demand. Sales dropped significantly while May sales numbers could be mayhem.
Auto sector recovery was strong in the second half of the prior fiscal after lockdown eased, however, the situation has deteriorated since COVID-19 cases have started multiplying during the second wave of infections. The impact of the second wave is worse than the first, said ICRA, adding that it might make recovery difficult and sluggish.
Several auto manufacturers have had to shut plants owing to COVID-19 cases and shortage of oxygen. Some have advanced plant maintenance dates to May from June. Production cuts have been announced by some manufacturers while some are confident that production will be ramped up in the second half of the year. Shortage of semiconductors is a pressing issue affecting the global auto sector. Production halts can be extended if the climb in cases does not cease soon, warns ICRA.
Weakening consumer sentiment
Exacerbating economic condition in India has led to weakened consumer sentiments on the back of job losses and a reduction in household income. The second wave has penetrated the rural segment unlike the first, and cases are rapidly rising in rural areas, however, rural sentiment is cushioned by increases in crop yields and forecast of third consecutive normal monsoon.