CRISIL Research expects auto finance rates to remain subdued in fiscal 2021. Some uptick is expected in fiscal
2022 from a low base.

Slowdown in underlying demand impacted financing growth in fiscal 2020

Financing growth (disbursement) contracted by -9% in fiscal 2020 v/s a 9-10% growth in fiscal 2019, driven by
a contraction in underlying asset sales of -18% v/s growth of 3% in fiscal 2019, amid rise in PV prices - they rose
~3% in fiscal 2020 on top of a ~5% rise the previous fiscal, owing to rising insurance costs and increasing fuel
prices. Apart from the demand side, supply side fundamentals were impacted due to credit crunch faced by a few
non-banking financial companies (NBFCs), with rising cost of funds for NBFC players post IL&FS' default and
restricted lending by them.

The pandemic-induced economic slowdown is expected to hurt vehicle finance disbursements hard, with asset
demand likely to fall, even as average prices increase on account of Bharat Stage-VI (BS-VI) implementation.
However, rural demand is likely to support disbursements to an extent. CRISIL Research expects the loan-to-
value (LTV) ratio to continue to be subdued since the purchasing power of borrowers will be hit in the weakening
economic environment. Since finance penetration is expected to remain range-bound, disbursements in the overall
vehicle segment will plummet to -25% over this fiscal. However, the intensity of the decline would differ from
one sub-segment to another. In terms of asset quality, NBFCs may restructure 20-23% of total outstanding credit
to manage the disruption caused by the pandemic.

MARKET SIZE OF THE INDIAN AUTOMOBILE SECTOR

The two-wheelers dominate the Indian auto industry (~80% by volume) and primarily dictates the tone for the
sector. Over fiscals 2015-2020, two-wheeler sales registered 1.7% CAGR, passenger vehicles (PVs) 1.3%,
commercial vehicles (CVs) by 3.2% and tractors ~5.2%. In fiscal 2020, all segments saw a decline in sales due to
slowdown in economy and transition to BS-VI norms. The decline in two-wheelers and PVs was 18%, commercial
vehicles (CVs) 29% and tractors 10%.

Automobile segments (domestic sales volumes)

ECA

         
     
        

 

“Commercial vehicles 3.2%  (26)-(28) %

Passenger vehicles 1.3% | (11)-(13) % .

|"Two-wheelers | 17% 5)-(17)% 18.8

Tractors 5.2% 18-20% 0.86 |

[Oden Enwayivelticles maa 10 E203) 25m) Oi -

Note: ‘Projected domestic sales as on FY 22.
Source: The Society of Indian Automobile Manufacturers (SIAM), CRISIL Research.

Review of the Indian Automobile Industry
Commercial vehicles

Domestic industry

Between fiscals 2015 and fiscal 2020, domestic CV sales logged 3.2% CAGR. In fact, over fiscals 2015-2019,
the CAGR was 13% due to a sharp 16% CAGR in medium and heavy commercial vehicles (M&HCV) segment
and 14% in light commercial vehicle (LCV). Over the last five years, sales of buses, on the other hand, saw a tepid
3.1% CAGR. Sales volume in the past have been volatile due to various factors such as government policies,
lower industrial production, fall in agricultural output, declining share of road in goods transportation that
increased transporters’ cost of operations and profitability.

M&HCYV volume declined during economic slowdowns of fiscals 2009 and 2014, after which there was a gradual
recovery, in line with economic growth. In fiscal 2017, CV sales saw a 7% on-year rise over April-October.
However, after demonetization (November 2016), cash crunch in the economy negatively impacted industrial
output and slowed sales growth. However, in fiscal 2018, commercial vehicle sales witnessed strong recovery and
grew a healthy 20%. The growth continued in fiscal 2019 supported by a sharp rise in LCV sales and continued
growth in M&HCVs. In fiscal 2020, the industry witnessed a sharp decline on a high base due to inventory
adjustment on account of BS-VI transition.

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