Deeper and wider penetration of the second wave of pandemic into the hinterland, temporary closures of dealerships and higher channel inventory will moderate recovery of two wheelers this fiscal to 10-12% volume growth against our earlier estimate of 18-20%, says CRISIL Ratings in its latest report.
The report further signified that this volume growth would come on a low base – after a tumble of 13.2% last fiscal and 17.2% in fiscal 2020. However, overall revenue growth will be higher on account of calibrated price hikes by two wheeler makers in the last quarter of fiscal 2021, as well as the current fiscal to offset rise in input costs.
Net-net, credit profiles of two-wheeler makers will remain healthy owing to higher revenues, almost stable operating margins, healthy cash surpluses and strong balance sheets. A CRISIL study of five manufacturers, which account for ~80% of the sale volume of the sector indicates as much.
Says Gautam Shahi, Director, CRISIL Ratings, “Though forecasts of normal monsoons in the impending season bode well for the rural segment, higher rate of Covid-19 infections in rural areas will impact income levels and constrain offtake, for most of the first half of fiscal 2022. Moreover, unlike during the first covid wave, channel inventory for the industry was higher at 40-45 days in April 2021 compared to 20-25 days in April 2020 due to BS VI transition. Hence, benefit of channel filling will not be available this fiscal, as the impact of the covid wave abates from Q2 of current fiscal, resulting in lower growth.” (Share Manthan, July 16th, 2021)