Profitability of automakers to remain weak in FY21: Fitch Ratings

Credit rating agency Fitch Ratings has said that it expects Indian automakers’ profitability to remain weak as the pandemic’s economic impact will weigh heavily on demand in the current financial year (FY21). 

However, it added that the volumes are expected to partly recover in the second half of FY21 as sales have gradually increased after the easing of lockdown measures in May.

Further, it stated that India’s automakers reported sharper volume declines and weaker profitability in the last quarter of the financial year ended March 31, 2020 (Q4FY20) than in the earlier quarter. The agency cited factors such as slowing GDP growth and weak consumer sentiment to have reduced volumes and led to higher discounts by the automakers. It said that the implementation of BS6-a more stringent emission framework in April 2020 will increase the production costs.

It also mentioned that sales in all key auto categories fell sharply in Q4FY20 from Q3FY20 as discounts offered by automakers during the festive season helped to slow the downtrend in the sales that started in the beginning of 2019. Moreover, auto sales were affected by poor consumer sentiment as quarterly GDP growth slowed over FY20.