Implementation of BS VI could impact Commercial Vehicle Sales in short term : IndRa

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Biznextindia : The implementation of Bharat Srage VI (BS-VI) emission norms from 1st April 2020 could further aggravate the weak demand situation in the commercial vehicle (CV) segment, estimates India Ratings and Research (Ind Ra).

The agency is also of the view that risk aversion by finance providers could lead to Funding Challenges for Owners of BS-VI CVs

“The Bharat Stage VI (BS-VI) emission norms, which are scheduled to be implemented, from 1 April 2020, could create short-term headwinds for the commercial vehicle (CV) segment. Considering the sharp YoY fall in the sales volumes of CVs since May 2019, the underwhelming pace of industrial activity, and the higher cost of ownership of a BS-VI CV, the implementation of BS-VI could add to the sector’s woes. Furthermore, given the excess supply situation and muted demand-side fundamentals in the economy, the agency believes the pre-buying of BS-IV CVs till end-4QFY20 is unlikely to be meaningful as compared with the earlier occasions when new emission norms had been implemented. For fleet owners, the ownership of BS-VI CV would be credit neutral, as the benefits from fuel efficiency and maintenance would largely be offset by higher debt repayments” said Ind Ra.

Meanwhile, in an excess supply situation, wherein weak demand from the industry would not fully support the already built-in system level supply, an expensive new BS-VI vehicle would be quite unviable for financers, according to Ind-Ra. An under-utilised fleet with flat freight costs would put pressure on the debt repayment capability of fleet owners. Consequently, the lenders would exhibit risk aversion with respect to extending credit to buyers of BS-VI vehicles by offering lower-than-usual loan-to-value and higher financing costs, especially to fleet owners whose operating cash flow would be inadequate to offset the debt repayments.

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