MUMBAI : Commercial vehicle (CV) manufacturers are expected to have incurred a cost of Rs 2,500 crore in disposing of BS-III vehicles banned by the Supreme Court for sale and registration after April 1, 2017, said a report on Monday. According to the report by Crisil Research, a division of ratings agency Crisil, the CV makers disposed of over half of their BS-III vehicles' stock before the Supreme Court set deadline of April 1, 2017.
The report showed that discounts and incentives on vehicles sold till March 31, 2017, are expected to have cost the CV manufacturers about Rs 1,200 crore. Additionally, Rs 1,300 crore would be incurred to dispose of the unsold inventory.
"CRISIL Research estimates the impact of this on the Ebidta margins of listed truck makers (Ashok Leyland and Tata Motors' standalone) to be equal to 2.5 per cent of their revenues," the report said.
"The impact would be staggered across fiscals 2017 and 2018, because the unsold inventory will have to be brought back from dealerships and then dealt with."
The report elaborated that 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 per cent 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," the report said.
"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 Rs 11,600 crore. The industry is expected to have sold -- 55 per cent of this in the last three days of March by offering discounts of 20-40 per cent on the sticker price compared with -- 10 per cent before the ruling."
"The additional discounts and incentives are expected to have cost about Rs 1,200 crore, of which the truck makers are likely to bear about 80 per cent and their dealers the rest."
In addition, the report highlighted that the unsold BS-III inventory is expected to entail a cost of another Rs 1,300 crore for CV makers.
"We estimate the remaining 40,000-45,000 units of unsold inventory to be returned in the upcoming months," the report said.
"Assuming the truck makers would have to incur an additional cost of Rs 3-4 lakh per vehicle on reverse logistics and remodeling to BS-IV, it would mean an additional expense of Rs 1,300 crore."