Higher cost of ownership of BS-VI commercial vehicles could worsen drop in sales: India Ratings

By:Updated: November 20, 2019 3:35:46 PM
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The deadline for BS-VI emission norms is closing in as vehicle manufacturers scramble to be BS-VI ready with their products before BS-IV vehicles are banned starting 1st April 2020. While we’ve witnessed already that the BS-VI upgraded versions of existing models are priced substantially higher than their previous BS-IV versions, it is now being determined that BS-VI emission norms can create short-term headwinds for the commercial vehicle (CV) segment in India.

The CV sector in India has been registering a year-on-year fall in sales volumes, especially since May 2019. And now, rating agency Indian Ratings and Research has said that considering the underwhelming pace of industrial activity and higher cost of BS-VI compliant CVs, the onset of BS-VI norms will add to the slump in the sector.

Besides, given the excess supply and muted demand-side fundamentals in the economy, the rating agency believes the pre-buying of BS-IV CVs till the end of the fourth quarter of the current fiscal is unlikely to be meaningful as compared with the earlier occasions when new emission norms had been implemented, it added.

For fleet owners, the ownership of BS-VI vehicle would be credit neutral as the benefits from fuel efficiency and maintenance would largely be offset by higher debt repayments, it said.

The revised axle load norms led to inorganic capacity expansion in the system while demand-side fundamentals have remained fairly muted as evident from the decline in the index of industrial production and the decrease in the aggregate volumes of manufacturing companies, it noted.

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“Demand for CVs would remain challenged in the near term by the slowing growth of industries and the economy in general as well as by the impact of the extended monsoon on agricultural produce and rural demand,” India Ratings and Research said.

Assuming customers anticipate a revival in the economy and are offered incentives in the form of discounts, the agency believes the sector might witness moderate levels of pre-buying of BS-IV CVs. This, however, would lead to delays in the purchases of BS-VI CVs after 1 April 2020, it added.

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