Commercial vehicle manufacturers are likely to suffer for a Rs 6,000 crore net loss as sales crash, Crisil Ratings said on Thursday.
According to the ratings agency, a 30 per cent decline in sales volume on an already weak base would lead to a nearly six-fold increase in net loss to Rs 6,000 crore for CV makers this fiscal.
“That, combined with a stretch in working capital owing to support extended to dealers and suppliers, could result in sizeable negative cash flows and thus ballooning debt,” the ratings agency said in a statement.
“While this may constrain credit metrics in the current fiscal, credit profiles of manufacturers will be supported by strong balance sheets and comfortable cash buffers.”
As per the statement, CV makers were already hit by new overloading norms an d a slowing economy when the Covid-19 pandemic arrived, and sales volume had fallen 29 per cent in fiscal 2020.
“In the first quarter of this fiscal, volume plunged another 85 per c ent because of the pandemic-driven lockdown,” the statement said.
“The resultant sharp slowdown in industrial activity has hard-braked sales of medium & heavy commercial vehicles (MHCVs), which account for two-thirds of industry revenue.”
Sales of light commercial vehicles (LCVs) may fare better with support from the rural economy and private consumption.
“Cash flows may stretch further as manufacturers will tend to support key stakeholders to reduce stress across the value chain and help them rebound next fiscal – such as by providing dealers leeway on payment te rms and making timely payments to auto-component suppliers. That would temporarily increase the working capital requirements and raise the industry’s debt by almost a third to Rs 40,000 crore this fiscal,” the statement said.
“Consequently, credit metrics of the sector would be constrained, but credit profiles will be supported by strong balance sheets and expectation of a bounce-back next fiscal.”