Companies

Clearing BS-III inventories and slowdown woes dog truck makers

Murali Gopalan Mumbai | Updated on January 15, 2018

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Nearly two weeks into the BS IV emissions regime, medium/heavy commercial vehicles are staring at a rough ride ahead.

After the Supreme Court banned the registration of BS-III vehicles effective April 1, there were an estimated 45,000 units of these trucks (16-49 tonnes) stocked up at dealerships.

Of these, over two-thirds are from Tata Motors and Ashok Leyland, with the balance belonging to VE Commercial Vehicles, Mahindra Trucks and a handful of other players, industry sources say.

The best way to liquidate these inventories is to ship them out to neighbouring countries such as Nepal, Bangladesh and Sri Lanka where BS-III norms are still in place for trucks. Africa is also a distinct possibility, but the issue boils down to demand in these markets.

The other, though impractical option, is to retrofit these trucks so that they become BS IV-compliant.

This is a laborious process which will involve getting these vehicles back to the plants and working on them all over again. “It would be a logistical nightmare, in addition to the loads of paperwork that need to be carried out as part of the exercise,” an industry source told BusinessLine.

It remains to be seen how quickly these companies can expend their stocks in the coming months.

Some of their top executives have stated in recent months that they do not expect great momentum for BS-IV trucks.

This is because the vehicles would be dearer by nearly 10 per cent, translating into a hike of at least ₹1.5 lakh.

In fact, prior to the apex court ruling, truck makers had pretty much reconciled themselves to the fact that the first half of this fiscal would be tepid for sales of their medium/heavy duty offerings.

They were of the view that fleet operators would make a beeline for the less expensive BS-III options which would, therefore, see demand surge in the January-March quarter that just went by.

The fact that even this optimistic scenario did not quite materialise now means that companies have their work cut out in the coming months. Some do feel short-changed and upset with the SC judgment, given that they had already taken a huge blow post demonetisation, when vehicle sales crashed.

While this was true across vehicle categories, a B2B segment like trucks suffered a lot more as the end-user needed cash to balance their business. In the weeks following demonetisation, they chose to defer buying trucks and growth momentum was impacted quite considerably.

When the apex court delivered its judgment, nearly 50 per cent of stocks were heavily discounted in the two-day scramble but there is still a big number to contend with now.

Given the rather sombre outlook for April-September, production at truck plants could just take a hit though it is a bit too early to say if this will mean reduced working days.

There has been a lull in manufacturing activity, and with the Railways also emerging a serious rival in cargo transport, medium and heavy trucks could face serious headwinds going forward. How long this will last is the million-dollar question.

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Published on April 11, 2017
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