The lockdowns prompted by second wave of COVID-19 infections are expected to affect businesses in the short term, says tyre major MRF Ltd. There is also uncertainty on the demand for vehicles in the months ahead.
KM Mammen, MRF Chairman and Managing Director, in the company’s annual report for 2020-21 said they are hoping that demand for tyres will pick up now as the lockdowns have been lifted. “Industries have learned to work with lockdowns, though in many cases businesses have been affected adversely,” he said. “Lockdowns have affected our business also and we are hoping that demand for tyres will pick up now that the lockdowns have been lifted.”
Mammen highlighted that automobile companies had also cut down their production during the lockdowns. “They appear to be getting back to normalcy after the lifting of the lockdown.” However, he said there is some amount of uncertainty as to how demand will be for vehicles going forward in the months ahead. The prospects for the automobile industry have been hit by the COVID-19 second wave just when things started looking better.
“As per FADA, vehicle registrations have declined by 28% in April 2021. Factory shutdowns have been extended. The impact in rural areas also is seen to be more in the second wave, affecting, in particular the two-wheeler demand,” the annual report said. “In view of the second wave of coronavirus and the subsequent lockdowns imposed by various state governments in the first quarter of the financial year 2021-22, the business is expected to be affected in the short term.”
MRF also pointed out that component shortages including semiconductors, will also impact in the near term. Although recovery of the sector is linked to the containment of the virus spread and progress of vaccination, the company believes pent up demand might come to the aid of the industry from the second quarter like in the last year, particularly in the passenger segment which currently is sitting on order backlogs. MRF said the voluntary vehicle scrapping policy announced by the government could potentially provide a big boost to the automobile industry in the long term.
“But in the near term, besides the growth of the economy, the fortunes of the automobile industry is linked to a rise in employment and income levels, considering that entry level models have suffered cost increase,” the report said. “The slowdown in growth will pose a challenge to the company’s performance.” MRF added that challenges faced with regard to the availability of raw materials because of COVID-19 continue to remain, besides the continued volatility in raw material prices expected to pose difficulties.