TVS Motor expects GST rate cut, easy credit to offset BS VI impact on moped

TVS Motor Company, the only manufacturer of mopeds in India, is expecting that support from retail finance companies and a possible reduction in Goods and Services Tax (GST) rates for two wheelers might help reduce the impact of implementation of Bharat Stage VI (BS VI) norms on moped prices. 

Analysts say that the transition from BS IV to BS VI emission norms could push up the cost of mopeds. The increase -- due to smaller size and ticket size -- is expected to be steeper for mopeds compared to other two-wheelers. 

Vivek Kumar, Auto and Auto ancillaries sector analyst, JM Financial Institutional Securities said, “In terms of percentage of vehicle price, mopeds may see 15-18 per cent effective price increase to the customer vis-à-vis less than 10 per cent for a premium motorcycle”.

K N Radhakrishnan, chief executive officer (CEO), TVS Motor Company said during an earnings call that the company's mopeds will continue to meet all regulations. Already, TVS mopeds have moved from 2-stroke engines to 4-stroke, and electric is on the anvil.

Analysts said the impact of BS-VI on the price of mopeds can be significant as technology-related costs will be much more than that on scooters or motorcycles -- as a ratio of the retail price. Prices of TVS mopeds range between Rs 29,000 and Rs 38,000.

BS-VI compliance will require the addition of a fuel-injection system, along with a three-way catalytic converter, an electronic control unit, an onboard diagnostic module and an O2 sensor, according to an auto expert.

“We have unique qualities which cater to the bottom of the pyramid and it will completely comply with BS VI,” said Radhakrishnan.

The company plans to tackle this problem with the help of TVS Credit Services, a financial services arm, and other retail finance companies. TVS Motor also expects the government to bring down GST on two-wheelers from 28 per cent to 18 per cent.

“I think it's a fair request (to reduce GST) from the two-wheeler association. It will be good for the industry.”

Despite insurance premiums going up in the financial year (FY) 2019, moped sales have increased from 880,000 to 900,000.

"We are confident that BS VI will work in case of Mopeds too. We have to study what is the cost increase and what is the price increase in this category and we have to come up with a strategy on how to support customers.," added Radhakrishnan.

Mopeds account for four per cent of the Indian two-wheeler market, which sold over 21 million units in 2018-2019. TVS Motor Company, India's third-largest two-wheeler manufacturer, has been the sole player in this segment after Hero and Kinetic exited the space years ago.  
 

Motorcycles, scooters, mopeds and three-wheelers contribute 37 per cent, 30 per cent, 30 per cent and 3 per cent, respectively, to overall volumes of TVS Motor. 

Moped sales volume during the quarter ended March 31, 2019, fell by 3.7 per cent year-on-year (YoY) to 2,18,320 units, compared to 2,26,653 units in same period previous year.

TVS Motor Company's overall two-wheeler sales (including exports) grew from 3.36 million units in FY2018 by 11.6% to 3.75 million units in FY2019. 
 

While the motorcycles and scooters businesses grew by 15 per cent each, the moped segment grew over two per cent during 2018-19 to 880,000 units in the domestic market. Over 16,000 mopeds were also exported by TVS in the previous financial year.