Tata Motors: BS-III inventory manageable,to begin exports soon

Largest commercial vehicles maker Tata Motors does not see a big hit on its bottomline from the unsold BS-III inventory as it expects to clear the remaining stock by way of exports which will begin this month itself.
"We are left with around 15,000 units of BS-III models. Out of this only around 3,000 are with the dealers. So I don't see any need to fret over this as I can easily ship them abroad," Ravindra Pisharody, executive director for commercial vehicles at Tata Motors told PTI here today.
When asked about the value of this unsold inventory, he said they should be valued at under Rs 4,000 crore.

But the company is not overtly worried over this inventory as "it has a ready export market. We can ship them to Bangladesh, Sri Lanka and Nepal, where we sell over 40,000 units a year cumulatively. So, there is no need to flood these markets with our products.
"We should be starting shipping to some of these markets this month itself. We also have the African markets to tap," Pisharody said, adding "over half the stock is exportable over the next four-six months with minimal or no change in prices and will are looking at converting the balance to BS-IV grade".

The head of the country's largest truck and bus maker also noted that the auto industry and the government are still considering whether legal action is possible. "We have a strong support from the roads minister (Nitin) Gadkari."

Pisharody also said Tata Motors has the option of upgrading the BS-II LVCs to BS-IV, but HCV conversion would not make sense from the cost side.
"We can upgrade the LCVs at 5 per cent of additional value of the BS-III model," he said.
The move comes after Supreme Court on March 29 banned sale of BS-III vehicles from April 1.
He said while whole sales in March fell marginally to 36,000 due to the ban from 38,000 a year ago, retail sales have been phenomenal at over 50,000 units.

Soon after the SC verdict, analysts at rating agency Crisil had pegged around Rs 2500-crore or 2.5 per cent of margin loss to CV makers due to court ban.
"Truck and bus makers which have sold a little over half of their BS-III inventory by March 31, would have lost Rs 1,200 crore on discounts and incentives and Rs 1,300 crore more to dispose of the unsold inventory," Crisil had said in a note on April 3.
It can be noted that companies offered heavy discounts of 20-40 per cent on the sticker price compared with 10 per cent before the ruling.

On the impact of this on the Ebidta margins of listed truck makers (Ashok Leyland and Tata Motors' standalone), the report had said this was equal to 2.5 per cent of their revenue. But added this would be staggered across fiscals 2017 and 2018, because the unsold inventory would have to be brought back from dealerships and then dealt with, which would happen only in the new financial year.
On the day of the final ruling, the CV industry was left with inventories of around 97,000 units (equivalent to 1.7 months of sales or worth around Rs 8,000 crore) valued at Rs 11,600 crore. Around 45 per cent or 40,000-45,000 units are still unsold, which may cost around Rs 1,300 crore drag on the industry.

These discounts and incentives are expected to have cost about Rs 1,200 crore of which the truck makers are likely to bear about 80 per cent and their dealers the rest. That works out to a 300-350 bps erosion in the aggregate fourth quarter Ebitda margins of Tata Motors and Leyland.