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Price hikes to dampen recovery prospects for Indian automakers: Fitch

Hikes come at a time when boost in some categories from pent-up demand and festive spending fades, and the economic impact from the pandemic reasserts itself, rating agency says

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Festive demand helped sustain growth after September, but the pace slowed to 5 per cent (year-on-year) in November from 14 per cent in October.
Abhijit Lele Mumbai
2 min read Last Updated : Dec 17 2020 | 3:07 PM IST
Indian automakers' plans to pass on higher commodity prices to customers will dim the prospects for a demand recovery after December 2020. The hikes come at a time when the boost in some categories from pent-up demand and festive spending fades, and the economic impact from the coronavirus pandemic reasserts itself, Fitch Ratings said.

Pent-up demand after the gradual easing in the government's lockdown helped India's monthly wholesale volume of passenger vehicles (PV) return to growth after July 2020. PV wholesale volumes rose by 13 per cent YoY in the quarter ended September 2020, Society of Indian Automobile Manufacturers data showed.

Festive demand helped sustain growth after September, but the pace slowed to 5 per cent (year-on-year) in November from 14 per cent in October. This, even after including timing advantage from the Diwali festival falling in November in 2020 as against October in 2019. “We believe this indicates pent-up demand is tapering off”, the rating agency said.

The demand in other auto categories has remained weak. India's commercial vehicle (CV) wholesale volumes shed 20 per cent YoY in the September quarter. The contraction came after a sharp 85 per cent drop in the preceding quarter (June 2020), reflecting challenges from factors such as excess freight capacity and weak availability of financing.
The dependence on more cyclical end-markets, particularly, for medium and heavy commercial vehicles (MHCV), also impacted offtake, it added.

The reported CV wholesale volumes from top manufacturers, including Ashok Leyland, Tata Motors and Mahindra & Mahindra suggest the volume inched towards normal levels in October and November. But, registrations were down more than 30 per cent, according to Federation of Automobile Dealers Associations data.

India's monthly dispatches of two-wheelers to dealers rose by double digits after August. However, retail sales continued to decline, underscoring challenges from the limited availability of financing in rural areas. This offset better demand stemming from good harvests and consumers' preference for personal mobility amid the pandemic.

Automakers reported better profitability in Q2Fy21 than in 1QFY21, as they gained from better fixed-cost absorption due to higher volumes, cost efficiency steps amid the pandemic and prudent pricing practices. These factors helped counterbalance the uptick in commodity prices as automakers chose not to raise prices in an uncertain environment.

Topics :AutomakersAuto industryEconomic recoveryFitchpassenger vehicle salesFestive saletwo-wheelers salesAuto salescar prices