Automobile & Bharat Stage VI (BSVI) – A great initiative for the long-term

, April 1, 2020, 6 Comments

automobile-bharat-stage-vi-bsvi-marketexpress-inThe Indian Automobile sector is, the fourth largest automobile sector in the world, witnessing one of the key reforms with the transition from Bharat Stage (BS) IV to BSVI. In this direction, the Government of India (GoI) has announced implementation of BSVI norms from April 01, 2020. Hence, India will become the first country in the world to skip BSV. Key to note is the Indian automobile industry has taken only four years to implement BSVI as compared to eight years taken by European nations due to the following Paris climate agreement, controlling pollution level and providing clean air. Hence, Indian automobile industry will be in par at Euro VI and US standard norms.

As we stated earlier, transition to BSVI is a one of the key reforms in the Indian automobile sector, hence it is expected to have implication across the sector in the multiple ways such as

  • Higher input cost
  • Discontinuation of few diesel models
  • Inventory management
  • Expected pre-buying

Higher input costs – Higher cost of automotive product and prevailing slowdown in Indian economy over the 12-18 months have impacted automobile sector significantly. Moreover, implementation of BSVI is expected to impact the automobile sector due to higher cost of products.

As per SIAM, passenger vehicle (PV) would see a cost increase in the range of 3-7 per cent which will act as a dampener to sales growth. In order to manage market share and to get a better place in the market, PV manufacturers Maruti Suzuki (MSIL), Hyundai, Honda, Tata Motors (TAMO), Mahindra and others have already launched their BSVI products.

MSIL has sold ~5.0 lakh units of BSVI till January 24, 2020 and preparing for the upcoming launches. TAMO is expected to be well prepared before the deadline and expected to launch around 100 lead models from January 2020 onwards. Among the new launches Kia and MG entered the Indian market with their BSVI portfolio, which has shown some exceptional results despite subdued demand. In the two-wheeler segment, the cost is expected to increase by 10-15 per cent. Honda, TVS and HeroMoto are well prepared in the segment, however Bajaj is expected to be aggressive in 2020 for launching BSVI products.

According to CEO of TAMO, Guenter Butschek, BSVI transition is expected to be a challenging for the CV segment due to calibrate production and wholesale stock against retail demand. The cost for CV segment is expected to rise by 8-10 per cent. However, TAMO is well prepared to launch products for the CV segment, whereas Ashok Leyland has indigenously developed mid NOx technology. The mid NOx technology will provide two advantages in the form of low urea consumption and increased mileage metrics.

Discontinuation of few diesel models – PV manufacturers in India announced their decision for phasing out certain diesel car models due to higher input cost with related to the BSVI technology upgradation. In this direction, MSIL was the first company which completely given up manufacturing of diesel vehicles. While, other players like TAMO and Mahindra has decided to stop the manufacturing of selected models.

Pre-buying before BSVI — The automobile industry has expected strong pre-buying in Q4 FY20, which could not be seen on the ground due to prolonged slowdown in Indian economy, increase in axle load norms and delay in infra projects. However, we expect some Pre-buying in Q4 FY20.

Inventory Management  Unlike BSIV scenario, the automobile industry is well prepared for the inventory management and customers are not expected to receive hefty discount. However, the transition could be a bit challenging for the CV segment and any left inventory (any segment) post BSVI implementation is expected to be exported.

Outlook – In terms of cost, petrol vehicles in the PV segment are expected to have a minimum impact due to implementation of BSVI. Hence, MSIL is likely to benefit in the PV segment due to a leading position in the Indian PV market. Tata Motors and Ashok Leyland are well prepared for CV segment. However, the continued slowdown in Indian economy, inventory management and increasing cost may impact the CV segment. Two-wheeler segment is expected to see a low demand from rural areas which may diminish the growth factor in the short-term.

In auto components manufacturing; Bosch Indian is expected to have a mix impact due to vast presence and advance technology. Whereas Sharda Motors, a small player, is likely to benefit due to increase in content per vehicle for the BSVI exhaust system. A sharp increase in content per vehicle for two-wheeler wiring harness is expected to benefit Minda industry, which holds a market share of 35% in Indian two-wheeler wiring harness market. The carburettor will be replaced by fuel injection in two-wheeler segment. Ucal Fuel manufactures multi auto components for OEMs, and carburettor is one of its products, hence it may have some negative impact due to BSVI transition.

We believe that pre-buying will take place to some extent in Q4FY20, however Q1FY21 and Q2FY21 is expected to be tough for the automobile industry and demand is expected to pick up from Q3FY21.

In short, BSVI transition is expected to be a bit challenging task for the Indian automobile sector due to higher input cost and prevailing slowdown in Indian economy, however, it would yield significant benefits to all stakeholders of the society in the long-term. 

The opinions expressed in this article are the author’s own and do not reflect the view of MarketExpress – India’s first Global Analysis & Sharing Platform or the organization(s) that the author represents in his personal capacity.

Author doesn’t  hold any automobile stock/mentioned stocks in his portfolio. This article is only for knowledge/information purpose, hence investor should do their own due diligence about the companies before making any investment in automobile sector/above mentioned stocks.