BS-III ban: Commercial Vehicle manufacturers to bear a loss of INR 2,500 crores

The recent Supreme Court verdict on BS-III vehicles has come as a setback for the commercial vehicle manufacturers of the country. According to a report by research firm Crisil, the glooming loss of BS III vehicle sales ban would be around INR 2500 crores.

The estimate losses come from brisk rebates and incentives that the manufacturers offered during the two days rushing sales period. Giving an outline of the impact, the rating agency analysed that the companies which have sold over half of their inventories could have lost nearly INR 1200 crore. Moreover, to dispose of the unsold inventory, they would additionally shell out INR 1300 crores.

This could be the 2.5 percent of the overall revenue of the bigger players (Ashok Leyland and Tata Motors standalone) with reference to EBITDA (Earnings before interest, taxes, depreciation, and amortization) margins of the listed manufacturers. However, the report suggests that it should not be counted as instant loss but scattered across the FY 2017-2018 as the unsold stock will be recalled and dealt with accordingly.

The Apex Court ruling has rendered the CV industry with a whopping stock of 97,000 BS III vehicles, valued at INR 11,000 crore and equivalent to 1.7 months of approx. sales. The 20-40 percent discount on the sticker price was two-three times more than before the final ruling day. However, 80 percent of the loss is likely to be incurred by manufacturers while the rest will be subjected to the dealers.

The report also cautions that recalling the old stock from dealers and exporting them to countries with less stringent emission would be time consuming, about 5-6 months from now. This would be around 12-15 percent of the sticker price, excluding the reverse logistics and labour.

Sales in April are expected to be subdued owing to the return of the inventory by dealers and with BS-IV vehicles priced a little higher, dealers would need time to pile up their inventory to normal levels.