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BS-VI norms to create headwinds for commercial vehicle segment: India Ratings

Implementation of the BS-VI emission norms from April 1, 2020, rating agency India Ratings and Research has said this could lead to some short term headwinds for the commercial vehicle (CV) segment. Considering the sharp year-on-year fall in the sales volumes of CVs, especially since May 2019, the underwhelming pace of industrial activity and the higher cost of ownership of a BS-VI compliant CV, the implementation of BS-VI could add to the sector’s woes.

Furthermore, given the excess supply and muted demand-side fundamentals in the economy, the rating agency believes the pre-buying of BS-IV CVs till end of the fourth quarter of the current fiscal is unlikely to be meaningful as compared with the earlier occasions when new emission norms had been implemented. It said for fleet owners, the ownership of BS-VI vehicle would be credit neutral as the benefits from fuel efficiency and maintenance would largely be offset by higher debt repayments.

It noted the revised axle load norms led to inorganic capacity expansion in the system while demand-side fundamentals have remained fairly muted as evident from the decline in the index of industrial production and the decrease in the aggregate volumes of manufacturing companies. Besides, the agency said that demand for CVs would remain challenged in the near term by the slowing growth of industries and the economy in general as well as by the impact of the extended monsoon on agricultural produce and rural demand.

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