BS4 inventory pileup more worrying for two-wheelers than cars & commercial vehicles: Crisil

Pre-buying in the last quarter was expected to help liquidate the remaining BS-IV inventory. However, the rapid rise in Covid-19 cases in India over the past few days has dealt a death blow to retail sentiment.

By:Published: March 26, 2020 1:59:56 PM
FADA Approaches Supreme Court Seeking Extension Of Sale, Registration Of BS-IV Vehicles Till May-EndImage: Reuters

The Indian automobile industry had just begun to look at brighter days after having experienced the worst sales downturn in decades but now it stares at new trouble fast approaching. The COVID-19 coronavirus pandemic has affected footfall at dealerships, sales are affected, and the BS-VI emissions standards deadline is only some days away. This gives rise to the inventory pileup of outdated stock. OEMs and dealers are required to liquidate their Bharat Stage (BS) IV inventory by 31 March and shift to the BS-VI regime from 1 April.

With footfalls drying up due to the pandemic, they are looking at huge unsold inventory. CRISIL Research’s interaction with dealers across India indicates the situation is more worrying for two-wheelers than for passenger vehicles (PV), light commercial vehicles (LCVs), and medium and heavy commercial vehicles (MHCVs).

Pre-buying in the last quarter was expected to help liquidate the remaining BS-IV inventory. However, the rapid rise in Covid-19 cases in India over the past few days has dealt a death blow to retail sentiment.

With just a few days to go in fiscal 2020, two-wheeler dealers are anxious as they are saddled with huge BS-IV inventory, and are offering higher than normal discounts – around twice the festive season discounts – to encourage pre-buying. Interestingly, OEMs that transitioned to BS-VI models in the third quarter this fiscal are impacted less by the BS-IV inventory pile-up.

Dealers of PVs and MHCVs are more comfortable with the transition as they have manageable BS-IV inventory. PV dealers are not offering discounts, though their CV counterparts – especially those dealing in LCVs – are expected to offer high discounts to liquidate the remaining BS-IV vehicles.

Also read: Covid19 relief measures: MG Motor India donates Rs 2 crore for medical aid  

The Covid-19 effect

To be sure, most OEMs in the PV segment had rationalised their BS-IV inventory by February-end and synchronised the launch of BS-VI variants. Larger ones also offloaded sound wholesale BS-VI inventory at the beginning of March to meet year-end targets, expecting higher retail volumes in March.

Then the Covid-19 rage intensified, drying up inquiries and footfalls, and resulting in lower-than-anticipated retail offtake. In its wake, dealers in certain regions have been asked to stay shut or operate with minimum employees.

The registration front throws up some interesting nuances, too. Some regional transport offices (RTOs) are advocating a quicker BS-IV registration process in anticipation of early closure if Covid-19 cases surge. This has severely hit the planned offtake of the remaining BS-IV inventory as well as the sale of new BS-VI inventory. Theoretically, it is possible to process same-day registration from RTOs through the online portal VAHAN.

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