Credit quality of passenger vehicle makers to remain stable due to strong balance sheets, healthy liquidity: Crisil

A strong balance sheet and healthy liquidity position are expected to help most passenger vehicle (PV) manufacturers maintain credit quality despite a 25 percent drop in segment sales in 2020-21. Report Thursday. As one of the many consequences of the coronavirus epidemic on the automobile industry, pre-owned vehicles and new small PVs may receive increased preference in FY21, it said.

The agency had earlier said that PV sales, including exports, are expected to decline by about a quarter (22-25 per cent) to a much lower level of about 28.5 lakh units in FY11, which will be the second straight year of double digits. The volume declined after a 15 percent drop in sales in the fiscal year.

The report states that the credit quality of most passenger vehicle (PV) manufacturers (original equipment manufacturers or OEMs) will remain stable due to strong balance sheets and healthy liquidity (22-25 percent decline in sales).

“In some cases, support from a strong parent / group will help navigate the rough terrain,” it said.

The ratings agency said that it analyzed eight PV manufacturers (including two in different regions), covering about 80 percent of the industry’s sales volume.

Crisil has priced six of these OEMs, which is about 73 percent of sales volume in FY 2020.

Crisil Rating Associate Director Aparna Kirubakaran said the eight PV makers had surplus liquidity of around Rs 50,000 crore as of March 2020, which would help protect them from these difficult times.

“Also, the average debt-EBITDA of these players is estimated at around 1.1 times at the end of the last fiscal year. This ratio is likely to go up, but will be close to 2-fold enough by the end of FY 2021, which according to support There is at least 25-30 percent capital expenditure, ”Kirubakaran said.

The ratings agency reported a nearly 60 percent drop in domestic dispatches in the first half of this fiscal year, consistent with a staggering opening of dealerships from May 2020, followed by a 6 in the mass-driven fiscal balance. Revival of -8%. Improvement in rural demand.

Along with this, there will be a decline of about 22-25 percent in the total sales volume in FY 2021, with a 15 percent drop in export volume.

Crisil Ratings Senior Director Anuj Sethi said that with the increase in income, discretionary spending will overtake this financial year. Smaller PVs and used vehicles would be better suited to affordability.

“Furthermore, given the increasing awareness of social disturbances, consumers can reduce, if not avoid, travel by public, pooled and shared transport in the short term. However, commuting-pattern changes only benefit Will offset a partial decline. ” she added.

According to the report, operating profitability of PV manufacturers will be halted from this fiscal year despite lockdowns, fixed overheads and reduced production during lower operating rates, soft input prices and pruning marketing expenses.

PV manufacturers will continue to offer rebates through the first half, and will partially absorb the high cost of the BS-VI variant that has been given the demand for Tipid.

This will have an impact of about 150–200 basis points, with operating profitability of about 80 percent of raw material-related costs due to lower operating profit for the sample set in this fiscal year of 6-7 percent. .

The report states that the extent of the COVID-19 epidemic, and the ability of component supply chains and automotive dealerships to stabilize operations will remain key watchdogs.

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