Study Forecasts Decline for India’s Aftermarket

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Study Forecasts Decline for India’s Aftermarket
Photo: 9parusnikov/stock.adobe.com | Motorcycles lined up at a location in India.

Spending in India on aftermarket engine oils and other aftermarket items will drop significantly in fiscal 2021 as a result of the country’s lockdowns in response to COVID-19, based on a report by an analytics company.

The study by Crisil forecasted that aftermarket spending in 75 of the nation’s most populous districts will decrease more than 10% this year. Those districts account for 43% of the nation’s total spend on aftermarket items.

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“The economic crisis brought about by the extended lockdown to contain the COVID-19 pandemic is expected to whip up the woes of the auto component industry,” including engine oil, lubricants and tires, the firm said in its “Aftermarket aftermath” report issued in June. The company noted that the industry battled a steep slowdown in demand from both original equipment manufacturers and export makers, and will now experience mounting challenges in the aftermarket.

Crisil said it analyzed the likely decline in aftermarket revenues of the auto component industry in 75 of India’s 739 districts in fiscal year 2021. The 75 districts together accounted for a sizeable portion – ranging from about 23% to 58% depending on vehicle type – of automobile sales by OEMs and 46% of the total vehicle parc in the country. About 43% of the industry’s aftermarket revenue is concentrated in the 75 districts.

“We see aftermarket revenue in the 75 districts falling [about] 11% this fiscal year,” the company said.

The lockdowns are likely to cause an 18% drop in aftermarket spending for commercial vehicles and a 12% slide on such spending for two-wheelers in fiscal year 2021. Two-wheelers are projected to account for the largest proportion of aftermarket spending, at 37%, followed by passenger vehicles at 33% and commercial vehicles at 24%.

In two-wheelers, “a high proportion of aftermarket spend goes toward tire and engine oil replacement, which will be sharply lower as both are directly linked with annual running,” the company said in the report. “Besides, [two-wheeler] owners are likely to heavily downtrade – or opt for cheaper options in the aftermarket – given the impact of the economic slowdown.”

The company explained that annual running of a vehicle in kilometers is based on analyzing the impact of economic slowdown, vehicle end use, duration of lockdown restrictions and the risk, spread and intensity of COVID-19 infections. 

Aftermarket automotive expenditures are typically driven by annual running and replacement frequency. The company projects decreases in fiscal year 2021 of 22% for three-wheelers, 21% for commercial vehicles and 14% for two wheelers. By comparison, the expected decreases for passenger cars and tractors are much lower, at 4% each.

Usage of two-wheelers should improve gradually as commuters increasingly prefer personal vehicles. “We expect normal running levels only by September, once factories and businesses restart and reach their normal tempo,” the company said, explaining that this means work from home would get replaced by going to the office for work.

The company doesn’t expect passenger vehicle aftermarket revenue to fall far, only by about 4%, with maintenance expenses expected to rebound after lockdown. Passenger vehicles would be expected to see more usage as commuters shift to personal vehicles to commute for work.

The tractor market, which is little affected by demand shocks, would experience a low decrease in aftermarket expenditures, the company said.

Crisil said it is highly unlikely that both commuting and business operations would return to normal immediately after the lifting of a lockdown. “Indeed, Crisil Research expects all vehicle segments to achieve normalcy in operations only by September,” the company added.

“Thus, a parts-level decline mirrors the contraction at vehicle segment label, based on running and wear and tear of parts,” the company said in its report.

Crisil’s research projected a very high decline in spending on engine oils for three-wheelers in India, a high decline in such spending for commercial vehicles and a medium decline in spending on engine oil for two-wheelers. A low decline in such spending was expected for passenger cars and tractors. Research suggested a very high decline in spending on other lubes in both the commercial vehicle and three-wheeler category.

“In the current pandemic scenario, where this is negative demand sentiment, it is likely that consumers will prefer Indian aftermarket brands over original equipment supply, especially in areas of medium criticality, such as other lubes – apart from engine oil – and other parts,” the company stated.  ‘This will bring down revenue for these two product segments more sharply than for the industry on average,” Crisil said, because the price differential between Indian aftermarket brands and original equipment supply brands is 20% to 25%.

According to the company, its analysis takes into account engine oil, lubricants, tires and all auto component parts and labor expenditures to arrive at its estimate of the overall impact of the pandemic on revenue this fiscal year. It also takes into consideration the likely impact of the annual cost for operating a vehicle, and the replacement cycle of lubricants, engine oils, tires, spare parts and other components. This is along with considering customer behavior and attitudes towards replacement of parts, and commuter trends.

Majority owned by S&P Global Inc., Crisil is a global analytics company that is based in India and operates out of locations in several countries globally.