The two-wheeler industry is estimated to have incurred a loss of Rs600 crore due to the three-day discount offered before Supreme Court’s BS-III vehicles ban came into effect on 1 April, an Icra Ltd report has said.
The discounts during the fire sale after Supreme Court’s BS-III vehicles ban likely to impact Q4 results of two-wheeler firms, says the Icra report.
The major change in a two-wheeler on migration to BS-IV would be the inclusion of carbon canisters to control evaporative emissions, the report said.
The major chunk of the loss due to the BS-III vehicles ban is expected to be borne by the original equipment makers (OEMs) even as retro-fitment of the unsold vehicles to make them compliant with the Bharat Stage-IV emission standards is also an alternative, the report by ratings firm Icra stated.
The Supreme Court on 29 March banned the sale and registration of BS-III vehicles or those not compliant with BS-IV emission norms from 1 April. The step was taken due to concerns on vehicular emission.
“The total loss for the two-wheeler industry on account of the discounts offered during March 30-31, 2017 is estimated to be around Rs600 crore, sizeable share of which would be borne by the OEMs,” Subrata Ray, senior group vice-president at Icra, said in the report.
BS-IV emission norms, while tightening the emission limits on existing pollutants, also introduced limits on additional pollutants like nitrogen oxides.
As many as 6.71 lakh two-wheelers, out of more than 8 lakh BS-III vehicles, were impacted by the ban. The dealers tried to clear the BS-III vehicles inventory as fast as possible by offering massive discounts.
“The resultant discount-induced fire sales are likely to suppress the fourth-quarter earnings of automobile OEMs, and in particular two-wheeler OEMs,” Icra said.
Icra also estimates that the costs associated with the heavy discounting during 30-31 March would have a 150-165 basis points impact on the operating profitability of two- wheeler OEMs during the fourth quarter of the last fiscal.
India, which had been following the BS-III emission norms from 2010, shifted to BS-IV for all new two- wheelers from 1 April 2016 and was required to do so for all existing vehicles from 1 April 2017.
The other changes like tightening on limits of different pollutants would be met through optimization of the combustion process and increasing the volume and surface area of catalyst used in the catalytic converter, it added.