MOSL: Morning India (20/December/19): 1. Automobiles (BS6 The Last Hurdle | Value migration – the key risk); 2. Oil & Gas (Industrial pollution: Next driver for gas consumption)
MOrning India (20/December/19): 1. Automobiles (BS6 The Last Hurdle | Value migration – the key risk); 2. Oil & Gas (Industrial pollution: Next driver for gas consumption)
Today’s top research idea
Auto: BS6 The Last Hurdle | Value migration - the key risk
- Indian automakers are all set to transition to BS6 norms from Apr'20.
- After operating in a tough environment over the last 15 months, the auto industry now faces the last hurdle of BS6 transition, post which it will likely be 'business as usual' from 2HFY21, in our view.
- With the demand environment showing signs of stability and inventory under control, the BS6 transition is likely to be less problematic (unlike BS4).
- We believe that the BS6 transition would pose a bigger challenge for 2Ws than CVs and PVs given the magnitude of cost inflation, the possibility of a change in competitive positioning and the scope of value migration.
- We see possibility of value migration from (a) executive 100cc motorcycle to economy, (b) scooter 125cc to e-scooters and (c) diesel PVs to petrol/CNG/hybrid PVs. We also see potential for OEMs to gain an advantage by adopting a differentiated approach for BS6 compliance.
- We expect some pre-buying in 2Ws and diesel PVs, but limited pre-buy in CVs due to 30-40% excess capacity with fleet operators.
Piping hot news
RBI brings in India's version of 'Operation Twist' to lower yields
The Reserve Bank of India will conduct a simultaneous sale and purchase of bonds, it said on Thursday, in a move seen by market participants as an attempt to bring longer-term yields lower. It is the first time the RBI has conducted a special open market operation (OMO) of this kind, similar to the 'Operation Twist' carried out in the United States near the start of the decade.
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