A 30% decline in sales volume on an already weak base would lead to an almost sixfold increase in net losses to ₹6,000 crore for commercial vehicle (CV) makers this fiscal, Crisil Ratings said.

“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,” it added.

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. CV makers were already impacted by new overloading norms and a slowing economy when the COVID-19 struck, and sales volume had fallen 29% in FY20.

In the first quarter of this fiscal, volume plunged another 85% because of the pandemic-driven lockdown. 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.

Manish Gupta, senior director, Crisil Ratings, said, “Two consecutive years of high de-growth are likely to result in CV volume reaching its lowest point in 10 years. With utilisation down to a third, high fixed costs would dent the profitability of CV makers.”

“”Moreover, manufacturers may partly absorb BS VI upgrade costs in their quest to stimulate demand. That could drive down segment operating margins to near-zero from an already low 6% in fiscal 2020 and increase losses,” he added.