As the pent-up demand and festive spending witness a dip in the nation, Indian automakers searching to pass on greater commodity rates to clients will expertise dim prospects in recovery of demand immediately after December, Fitch Ratings stated on Thursday.
Pent-up demand immediately after gradual easing in the government’s lockdown measures helped month-to-month wholesale volume of passenger autos (PVs) return to development immediately after July. PV wholesale volumes rose by 13 per cent year-on-year in the quarter ended September.
Festive demand helped sustain the development immediately after September but the pace slowed to 5 per cent in November from 14 per cent in October. This is even immediately after like timing advantage from the Diwali festival falling in November as an alternative of October. This indicates that pent-up demand is tapering off, stated Fitch.
Demand in other auto categories has remained weak. Commercial automobile (CV) wholesale volume fell by 20 per cent in the quarter ended September immediately after a sharp 85 per cent drop in the preceding quarter, reflecting challenges from excess freight capacity, weak availability of financing and dependence on more cyclical finish-markets — specifically, for medium and heavy industrial autos (MHCVs).
Reported CV wholesale volumes from major makers like Ashok Leyland Ltd, Tata Motors Limited and Mahindra & Mahindra recommend the volume inched towards standard levels in October and November, but registrations declined by more than 30 per cent.
Monthly despatches of two-wheeled (2W) autos to dealers enhanced by double digits immediately after August. However, retail sales continued to decline underscoring challenges from the restricted availability of financing in rural regions, which offset far better demand stemming from fantastic harvests and consumers’ preference for private mobility amid the pandemic.
The automakers reported that profitability in the 3 months to September, the second quarter of the economic year ending March 2021 (FY21), rose from 1Q FY21 as they benefitted from far better fixed-price absorption arising from greater volumes, price efficiency measures amid the pandemic and prudent pricing practices.
Fitch stated these components helped to counter-balance the uptick in commodity rates as automakers chose not to raise rates amid an uncertain atmosphere. Nonetheless, some major automakers not too long ago announced their intentions to raise rates from January 2021 with the aim of passing on the sustained raise in commodity rates considering that June.
“The extent of the price increases is not clear at this stage, but we believe they could range from low to mid-single digits depending on the model and company. We expect most automakers to raise their prices, given the competitive margins and market participants’ broadly synchronised price moves in the past.” The cost raise will additional lift the price of owning autos immediately after cost hikes of up to 15 per cent from April 1 following the implementation of BS6 — a more stringent emission framework. This will dampen customer sentiment in an currently weak demand atmosphere.
“We believe the impact will be more pronounced on CVs which experienced higher price increases in percentage terms in April,” stated Fitch.