The government on Wednesday announced the decision to leapfrog to Bharat Stage VI emission norms (from existing BS IV norms) with effect from 2020 instead of the earlier plan of 2021, a move that will create challenges for the industry. Prices for BS VI petrol cars could go up by Rs 20,000 and diesel cars could become expensive by Rs 1 lakh, creating pressure on demand.
Maruti Suzuki, the country’s most valued automaker, saw one of the highest single day loss in recent times. The nearly five-per cent drop in its stock price wiped out over Rs 6,400 crore from its market cap. In addition to the domestic challenges, strengthening Japanese yen will result in higher royalty payments (in rupee) to parent Suzuki.
A company official, however, said the trend of yen has to be seen for another month or two before assessing an impact. “We anyways hedge for the short-term to avoid uncertainty,” he said. The company has recently announced it would make royalty payments on new models in rupee to avoid forex uncertainty.
“Uncertainty related to emission norms and diesel vehicles is an issue. There will be a technological challenge in moving from BS IV to VI for these companies,” said Saurabh Jain, assistant vice-president (fundamental research) at SMC Global Securities.
The cut was not limited to manufacturers of passenger vehicles. Three two-wheeler makers — Bajaj Auto, Hero MotoCorp and Eicher Motors — lost over two per cent each.
Kotak Institutional Equities said the potential implementation of stricter emission norms for two-wheelers could result in a significant increase in costs and have a negative impact on demand.
“We estimate that the cost of two-wheeler will rise by three-five per cent (average selling price of Rs 45,000) if the government mandate was to mandate BS IV emission norms for NOx for all two-wheelers,” it said. On four-wheelers, Kotak said it expected automobile companies to benefit from any policy intervention to remove older vehicles.