Despite offering sky-high discounts during the last three days of March the commercial vehicle industry is saddled with stocks of 40,000-45,000 unsold BS-III trucks and buses.
Commercial vehicle companies were not as lucky as two-wheeler manufacturers as at least half of their BS-III stock remains unsold which are collectively worth more than Rs 5,400 crore.
Despite offering sky-high discounts during the last two days of March the commercial vehicle industry is saddled with stocks of 40,000-45,000 unsold BS-III trucks and buses.
The inventory of Tata Motors is believed to be at least Rs 2500 crore while that of Ashok Leyland is expected to be at around Rs 750 crore. A mail sent to Tata Motors and Ashok Leyland, both of whom control 60 percent of the CV market, remained unanswered.
While the average discount ranges between Rs 3-4 lakh on medium and heavy commercial vehicle on some cases the discount went up as high as Rs 12 lakh on a Rs 20 lakh truck, as per dealers of both the companies.
“Commercial vehicle (CV) makers disposed of over half their stock of BS-III vehicles before the Supreme Court-set April 1, 2017, deadline. The discounts and incentives on vehicles sold till March 31, 2017, are expected to have cost them about Rs 1,200 crore. Additionally, Rs 1,300 crore would be incurred to dispose of the unsold inventory. CRISIL Research estimates the impact of this on the Ebidta margins of listed truck makers (Ashok Leyland and Tata Motors’ standalone) to equal ~2.5 percent of their revenues”, said a report by CRISIL released today.
When the Supreme Court asked the Society of Indian Automobile Manufacturers to submit data on unsold BS-III stock it was learnt that there were 97,000 units (equivalent to 1.7 months of sales) valued at Rs 11,600 crore left to be sold.
“We estimate the remaining 40,000-45,000 units of unsold inventory to be returned in the upcoming months, mainly comprising less-popular models since there were instances of supply shortage in some popular BS-III models. The truck makers are likely to adopt a mix of the following steps to manage unsold BS-III inventory - upgrading them for resale, dismantling vehicles for spares or incur higher working capital for holding the inventory until it is exported (which could take 5-6 months)”, added the report.
Truck makers like Ashok Leyland are expected to shortly begin buying back the BS-III stock from its dealers. Dealers of Tata Motors are also hoping that the manufacturer will do the same though they have not been given any written assurances by the company.“The additional discounts and incentives are expected to have cost about Rs 1,200 crore of which the truck makers are likely to bear about 80 percent and their dealers the rest”, added the report.