Ratings agency ICRA on Thursday maintained its growth forecast for two-wheeler sales at 12-14 per cent for the ongoing fiscal, despite the second wave of the coronavirus pandemic hitting non-metro and hinterlands that dampened rural consumer sentiments.

A low base, healthy rural cash flows, and continued preference for personal mobility would support two-wheeler demand in the festive season, ICRA said in a statement.

“While the overall consumption and investment demand may take some time to recover after the devastating second wave, India’s rural economy is expected to provide some support,” it said.

ICRA said it “expects a 12-14 per cent year-on-year growth in two-wheeler (2W) volumes in FY2022, amid an evolving COVID-19 situation”.

Expectations of a healthy rabi production, timely arrival of the monsoons, a hike in minimum support prices for kharif crops and other income support schemes by the government are likely to help revive rural demand sentiments and support the two-wheeler offtake in the festive season, it added.

“The continued preference for personal mobility solutions, amid the pandemic, would also drive-up some demand. Even as the pace of domestic demand recovery remains uncertain, the steady growth in 2W exports is encouraging and is expected to support industry volumes in FY2022,” the ratings agency said.

Commenting on the situation, ICRA Vice-President & Sector Head, Corporate Ratings Rohan Kanwar Gupta said, “the extensive localised lockdown measures, implemented due to the second wave between April and June 2021, were almost akin to the nationwide lockdown last year.”

Unlike the first wave, the surge in infections in non-metro and rural hinterlands, dampened rural consumer sentiments as well. This reflected in a sharp sequential fall in 2W retail sales in the mini festive and wedding season in April-May, he added.

Gupta further said several 2W original equipment manufacturers (OEMs) advanced their shutdown maintenance schedules during these months, which hit wholesale volumes significantly in April and May 2021.

“The inventory at dealerships, at (over) 30 days at May-end, was also relatively high, which could mean only a gradual recovery in wholesale volumes, till the stocking begins for the forthcoming festive season,” he said.

While uncertainty continues to persist regarding a possible third wave, ICRA said it continues to maintain a ‘stable’ outlook for the 2W industry.

“It is expected that a low base, healthy rural cash flows, and continued preference for personal mobility would support 2W demand in the festive season.

“Nevertheless, the same would be closely linked to the pace of the vaccination drive and demand disruption due to the resurgence of COVID-19; uneven monsoons or volatilities in exports could pose downside risks to the current estimates,” it added.

Gupta said in line with ICRA’s stable outlook on the industry, the credit profile of 2W OEMs is expected to remain healthy, supported by strong balance sheets, limited debt and healthy cash and liquid investments.

“While the capex would likely be higher than the FY2021 levels, major expansion plans are expected to be deferred till a meaningful demand recovery. Nonetheless, the OEMs will continue to invest in new product development and network expansion in both domestic and overseas arenas,” he said.