Auto industry hits coronavirus, lockdown roadblock; here’s what will get it up to speed in two years
时间:2024-06-02 03:47:53 阅读（143）
The auto sector has been witnessing one of the worst cyclical downturns over the past few quarters due to multiple factors, including lower demand, transition to BS-VI and NBFC liquidity crisis. This led to inventory pile up as volumes were hitting record lows month after month. During 9M FY20, net sales of the automobile OEMs witnessed a y-o-y decline of about 14%. The ongoing coronavirus pandemic and lockdown is set to hit the sector harder, which will take much longer to recover. Going forward, it will also face supply-side issues due to dependency on China for various components. As of March-end, auto industry volumes were down ~18%, and the spillover effect will be seen in FY21. Although this will be short-lived as the situation is coming to normal in China.
Lockdown will lead to negative operating leverage coming into play which will have an impact on margins. FY21 is unlikely to witness volume growth as people will try to regain the lost ground due to lockdown before resuming the discretionary spending. We expect H1FY20 to be lackluster followed by a gradual recovery in the second half of the year. The segment is likely to remain under pressure in the near-term as the virus outbreak persists. We anticipate that, even if the pandemic is curtailed, the consumer sentiment is expected to be negative and demand is expected to remain muted during much of FY21 led by fluctuating and uncertain economic conditions. While this has resulted in significant wealth erosion in the sector, the sector is offering opportunities to buy good stocks at very attractive prices.
Overall recovery in the sector is still a few quarters away. The speed of recovery largely depends on the government’s push towards growth. Going by the time frame in which other countries were able to pull back from this scenario, we should at least give it time till H2FY 21 to see positive changes and a larger scale recovery in the sector by FY22 on account of pent up demand and improved sentiments across rural (particularly) and urban India.
(Ravi Singh is VP- Head of Research, Karvy Stock Broking. Views expressed are the author’s own.)
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