Mumbai: The Covid-19 pandemic and the lockdown imposed due to it may soon go away but it will leave a lasting impact on the country’s automobile industry. One study found that two-wheeler sales may decline in double digits in FY21.

Two-wheeler sales in India during the recently started fiscal year are expected to be around 18 million units, an estimated decline of 11-13% over FY20, according to ICRA. Subsequently, operating margins of manufacturers are expected to contract by 200-250 basis points to 11.5-12% from around 14% in the previous year.

Due to the slump in economic activity in the country because of the lockdown, economic growth and discretionary spending are expected to take a hit throughout the fiscal year. The extent of slowdown remains contingent on the severity of the coronavirus outbreak and thus the continuation of lockdowns.

Even prior to the disease outbreak, the demand for two-wheelers was expected to be flat in India amid sharp rise in vehicle prices following the transition to BS-VI emission norms (resulting in 10-12% inflation) and subdued macro-economic scenario, according to a note from ICRA.

During the first 11 months of FY20, two-wheeler sales had fallen by about 16% over the corresponding period in the preceding fiscal.

“We expect two-wheeler OEMs to brace for another year of lower earnings and decline in operating margins. Besides lower sales, pressure on earnings will also arise due to costs involved in re-calling BS-IV inventory from dealers which is likely to remain unsold due to shutdowns,” said Shamsher Dewan, vice president, ICRA.

On the export front, while any long-term predictions were difficult, COVID-19 fallout and volatility in crude oil prices would be a negative in the near term, according to the note.

However, ICRA did not downgrade the medium term growth expectation from the two-wheeler segment.

“While recovery remains elusive in the near-term, over the medium term, ICRA continues to maintain a volume CAGR estimate of 6-8% for the two-wheeler segment, backed by positive structural factors like favourable demographic profile, growing middle class, low two-wheeler penetration, improving financing availability, participation of women in workforce and rapid urbanization,” Dewan said.

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