BS-III stage ban: Auto cos stuck with Rs 14,000 cr inventory

The Supreme Court decision to ban the sale of Bharat Stage III vehicles has spooked automakers which are staring at losses of Rs 14,000 crore and are unclear over the future course of action.

While a few auto companies are expected to push such vehicles in the exports market, others, which do not have a significant export share, are mulling the next move.

Auto stocks fell up to 3% on the SC verdict, with the biggest slide in Hero MotoCorp (3.15%) followed by Ashok Leyland (2.78%), Tata Motors (0.70%), Mahindra & Mahindra (0.66%) and Maruti Suzuki (0.58%)

According to a Care Ratings report, the automobile industry has an unsold BS-III vehicles inventory of 8.24 lakh units – 96,700 commercial vehicles (CV), 16,198 passenger vehicles, 40,000 three-wheelers and 671,000 two-wheelers -- valued at Rs 14,000 crore. Of the total two-wheelers, Hero MotoCorp has close to half of BS-III vehicles inventory.

Vinod Dasari, president of Society of Indian Automobile Manufacturers (SIAM), said, "While no one pushed for BS-IV fuel availability for seven years to change over faster, this sudden decision, just a few days before the changeover, is rather unfortunate as it causes undue stress on the entire industry, and causes loss of jobs."

He said the automakers continued producing BS-III vehicles due to lack of suitable fuel to run BS-IV compliant vehicles.

Dasari, also MD and CEO, Ashok Leyland, said, "Of the little inventory that we (Leyland) expect to remain beyond this (April 1), we will export them to other markets where we have a significant presence and still operate on BS-III norms. Finally, for any other vehicles still leftover, the company confirms that it will be able to easily upgrade them to BS IV at minimal cost."

Bajaj Auto said it plans to export the remaining BS-III compliant vehicles.

As per Care Ratings, if the players export the remaining stock, it will take about 10 months to clear the CV stock and about three months to clear two & three-wheelers segment stocks.

The additional cost of holding the inventory post the ban will be about Rs 105 crore per month, it said. The normal holding period of the stock is about a month, and hence the additional holding would amount to around Rs 800-1,000 crore as interest costs, assuming all stock is exported, it said.

A Tata Motors spokesperson said that the decision will have a material impact on the entire automotive industry, OEMs and dealer network. "The industry had planned the current transition to BS-IV in line with the accepted past practice of stopping production of earlier emission standard vehicles effective from the transition date. In the context of this previous experience, this decision is a 'penalty' to the entire automotive industry."

Erich Nesselhauf, managing director and CEO, Daimler India Commercial Vehicles struck a different note. "Today's decision of the Supreme Court reassures our belief that industry interests must go together with the interests of the society at large. The BS-IV standard will bring much-needed improvements in terms of air quality, to the benefit of the people and the environment," he said.