Will Mahindra dodge BS-III impact like CV firms Tata Motors, Ashok Leyland in its Q4 results?

Key highlights:

• Tata Motors, Ashok Leyland and Mahindra had unsold BS III inventory worth Rs 5,076 crore
• Ashok Leyland posted a net profit of Rs 476 crore in Q4
• Tata Motors' losses from BS-III were lower than expected at Rs 150 crore

Indian commercial vehicle (CV) manufacturers seem to have dodged a bullet, that being the impact of the Bharat Stage (BS) III vehicles ban verdict passed by the Supreme Court. Two of the top three CV manufacturers in India, Ashok Leyland and Tata Motors, were expected to see a huge impact on their balance sheets during Q4 FY17 due the losses of unsold BS-III vehicles. However, the damage has been less than expected.

Tata Motors, Ashok Leyland and Mahindra & Mahindra were reported to have BS III inventory worth Rs 5,076 crore after April 1. Added to this the large discounts offered by these companies were expected to further extend their losses. Many automobile analysts and research reports also predicted a decline net profits for these companies.

ALSO READ: Tata Motor, Ashok Leyland, Mahindra left with over Rs 5,000 crore of unsold BS III vehicles

They all seem to have got it wrong as Ashok Leyland, which announced its results on Thursday posted a net profit of Rs 476 crore in Q4, as against a net loss of Rs 141 crore during the same period last year.

The company's net profit in FY17 stood at Rs 1,223 crore as against Rs 390 crore in FY16.

ALSO READ: Ashok Leyland's Q4 jumps to Rs 476 crore; shares rise 6%

Hinduja group's flagship, Ashok Leyland's revenue increased by 13% to Rs 7,057 crore in Q4FY17 as against Rs 6,237 crore in Q4FY16.

Tata Motors too which announced its results on Tuesday this week saw a much lesser impact due to the BS-III ban. While it reported a 17% fall in its net profits for the quarter and nearly 3% drop in its consolidated revenue, the impact was lower than what analysts predicted. The result was a sharp rise of nearly 5% in Tata Motors' stocks the following day.

In fact, Ashok Leyland claims to have increased its market share by about 1% to 33.8% in the Medium and Heavy Commercial Vehicle (MHCV) segment during the quarter.

With these two CV manufacturers seeing a lower impact due to BS-III ban, it remains to be seen if the same is so with Mahindra & Mahindra (M&M) too. Mahindra's Q4 results will be announced by May 30.

It was not only that Tata Motors result's exceeded their expectations, the loss after tax too was above their expectations. While the Motilal Oswal report estimated that the loss after tax would be to the tune of Rs 700 crore, the adjusted loss after tax of Tata Motors was lower at Rs 540 crore.

ALSO READ: Why Tata Motors' shares soar despite fall in Q4 net profits

The report says that lower BS-III discounts had driven Tata Motors' margins after the ban by Supreme Court. This resulted in loss of only Rs 150 crore for the pending BS-III inventory.

Ashok Leyland, on the other hand, escaped the impact of BS-III during this quarter as there was a 30% slump in sales in April as it recalled the pending BS-III inventory for retrofitting and rerouting some of it to export markets.

One of the reasons for this growth for CV manufacturers during this quarter is the high sales due to pre-buying from fleets due to the BS-III ban. While they expect sales to slow down in April and May, there could be an uptick in sales in June with goods and service tax (GST) rates being similar to the tax structure earlier for the automobile sector.