Indian automakers are all set to transition to BS6 norms from April 2020. After operating in a tough environment over the last 15 months, the auto industry now faces the last hurdle of BS6 transition, post which it will likely be ‘business as usual’ from 2HFY21, in our view. With the demand environment showing signs of stability and inventory under control, the BS6 transition is likely to be less problematic (unlike BS4). We believe that the BS6 transition would pose a bigger challenge for 2Ws than CVs and PVs, given the magnitude of cost inflation, the possibility of a change in competitive positioning and the scope of value migration.
We see possibility of value migration from executive 100cc motorcycle to economy, scooter 125cc to e-scooters and diesel PVs to petrol/CNG/hybrid PVs. We also see potential for OEMs to gain an advantage by adopting a differentiated approach for BS6 compliance. We expect some pre-buying in 2Ws and diesel PVs, but limited pre-buy in CVs due to 30-40% excess capacity with fleet operators. BS6 is the last hurdle in the foreseeable future for the auto industry after going through a difficult operating environment over the last 15 months. This, coupled with initial signs of stability/recovery in demand and under-control inventory, ignites hope of a ‘business as usual’ scenario from 2HFY21.
The aforementioned improved scenario, along with the gradual launches of BS6 models (by MSIL, HMCL, TVSL, HMSI, etc.), instills confidence that OEMs would not have to indulge in fire sale by end-Mar’20 to liquidate BS4 inventory. 2Ws would face the highest cost inflation of 10-15% due to the BS6 transition.
