Lockdowns likely to affect business in short-term: MRF

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Lockdowns induced by the second wave of COVID-19 are expected to affect business in the short term, and there is some uncertainty on the demand for vehicles in the months ahead, according to tyre major MRF Ltd. In his address to shareholders in the company’s annual report for 2020-21, MRF Chairman and Managing Director KM Mammen said the company is 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. Lockdowns have affected our business also and we are hoping that demand for tyres will pick up now that the lockdowns have been lifted,” he wrote.

Stating that automobile companies had also cut down their production during the lockdowns, Mammen said, “They appear to be getting back to normalcy after the lifting of the lockdown. There is some amount of uncertainty as to how demand will be for vehicles going forward in the months ahead”.

The company’s latest annual report said the prospects for the automobile industry have been impacted by the COVID-19 second wave, just when things started looking better.

“As per FADA, vehicle registrations have declined by 28 per cent 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 two-wheeler demand,” the report said.

It further said, “In view of the second wave of COVID-19 and the subsequent lockdowns imposed by various state governments in the first quarter of the financial year 2021-2022, the business is expected to be affected in the short term”.

Moreover, the company said, component shortages, including key components like 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, MRF said, “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”.

The company also felt that 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.

MRF also said the issues posed by the second wave of the COVID-19 pandemic will result in the automobile industry remaining in the slow lane in the financial year 2021-2022.

“The slowdown in growth will pose a challenge to the company’s performance,” it said, adding “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.

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