For the commercial vehicle manufacturers, the Supreme Court ban on BSIII vehicles effective April 1, could set them back by `2,500 crore.
For the commercial vehicle manufacturers, the Supreme Court ban on BSIII vehicles effective April 1, could set them back by `2,500 crore. The discounts and incentives on vehicles sold till March 31 are expected to have cost them about `1,200 crore. Additionally, `1,300 crore would be incurred to dispose of the unsold inventory, said a research note by Crisil on Monday. It is estimated the impact of this on the Ebidta margins of listed truck makers (Ashok Leyland and Tata Motors’ standalone) may equal 2.5% of their revenues. The impact would be staggered across FY17 and FY18, because the unsold inventory will have to be brought back from dealerships and then dealt with. Leading CV makers had continued manufacturing BS-III vehicles all the way to March in anticipation of strong buying in the closing weeks of the fiscal year, given price hikes of 8-10% expected on BS-IV vehicles.
Indeed, for want of clarity on ban on production or registration, the industry had expected some BS-III trucks to be sold even in April. This had bloated up inventories. When the Supreme Court ruling came, CV dealers’ inventory at risk was around 97,000 units (equivalent to 1.7 months of sales) valued at `11,600 crore. The industry is expected to have sold 55% of this in the last three days of March by offering discounts of 20-40% on the sticker price compared with 10% before the ruling.
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The additional discounts and incentives are expected to have cost about `1,200 crore of which the truck makers are likely to bear about 80% and their dealers the rest. “We estimate the remaining 40,000-45,000 units of unsold inventory to be returned in the upcoming months, mainly comprising less-popular models since there were instances of supply shortage in some popular BS-III models.