HDFC Securities: Scrapping Scheme Back On The Radar For Autos And Auto Financiers

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HDFC Securities Report

The government has once again initiated talks to introduce a scrapping scheme, which could be rolled as early as October 2020.

Approximately 0.6 million medium and heavy commercial vehicles were sold 15-20 years ago and an almost similar number 20-25 years ago.

In our view, the introduction of this scheme will be supportive of commercial vehicle sales as the segment volumes are expected to decline to approximately 200,000 (down 50% from 2019 peak), given the impact of Covid-19 and BS-VI related transition on sales.

Over the past two years, auto financiers (banks and non-banking finance companies) have reported slowing loan growth, in tandem with falling auto sales, amidst uninspiring macro.

We believe that the scrapping scheme will be sentimentally positive for auto financiers as it could result in up-trading.

However, in the absence of details of the scheme, the impact is difficult to quantify.

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