New Delhi, Jul 30 (PTI) Domestic commercial vehicle (CV) industry volumes are expected to contract by 25-28 per cent in FY2021, ratings agency ICRA said on Thursday while maintaining a negative outlook on the segment.

The contraction will bring industry volumes to lowest levels in more than a decade.

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Although growth would be optically better in FY2022 at 24-27 per cent, recovery to industry volumes of even FY2017 levels would remain some time away, ICRA said in a statement.

"ICRA continues to maintain a negative outlook for the commercial vehicle (CV) segment over the near-term, with headwinds continuing from all fronts, be it financing availability, macroeconomic environment, regulatory developments or fleet operator health," it said.

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The situation has been further aggravated by the rapid spread of novel coronavirus in India.

Demand headwinds are expected to continue over the near-term, given the macroeconomic challenges in view of the pandemic outbreak, coupled with weakening financial profile of fleet operators and significant price hikes because of transition to BS-VI emission norms, it said.

"Additionally, the lockdowns imposed in the country from end of March 2020 have added production constraints to the on-going set of challenges," ICRA said.

The ratings agency said the only limited green shoot visible is the uptick in rural demand, which augurs well for light CVs segment, although ability to recoup lost sales of Q1 FY2021 remains to be seen.

"Accordingly, the domestic CV industry volumes are expected to contract further by 25-28 per cent in FY2021, which would bring industry volumes to the lowest levels in more than a decade," it added.

Overall, these headwinds are expected to exert pressure on earnings and credit profile of CV original equipment manufacturers (OEMs), which have witnessed sharp earnings contraction over the past 4-5 quarters.

"In particular, the medium and heavy CV (truck) segment would continue to face significant demand contraction in FY2021. The challenges related to freight availability and stress on fleet operators have compounded significantly over the past 3-4 months on account of the pandemic outbreak and lockdown imposed to curtail it," ICRA Vice President Shamsher Dewan said.

Accordingly, he said, "Notwithstanding the sharp contraction of 47 per cent in FY2020, the segment volumes are expected to contract further by 35-40 per cent during the current fiscal.

Recovery over the medium-term hinges on macroeconomic revival, as well as pick-up in construction and mining activity, he added.

Moreover, Dewan said replacement demand for new trucks and buses is likely to remain muted over the near-term, given the pressure on cash flows of fleet operators.

"Sustained and meaningful pick-up in the economy and infrastructure projects remains critical for the industry fortunes to reverse. In absence of either, we maintain a subdued outlook for the industry for the next fiscal," he added.

(The above story is verified and authored by Press Trust of India (PTI) staff. PTI, India’s premier news agency, employs more than 400 journalists and 500 stringers to cover almost every district and small town in India.. The views appearing in the above post do not reflect the opinions of LatestLY)