scrapping of vehicles older than 15 years, then we expect ~600,000 MHCVs to be available for scrapping. We
understand incentive of Rs. >90,000 for 16T MCV and >1,00,000 would be needed to scrap for trucks older than
15 years.

While vehicles are scrapped in addition to the scrap value direct cash incentive can be provided to a transporter
that scraps his vehicle. In case direct cash incentive is not provided and benefit on purchase of new vehicles are
to be provided, it is important to note that the transporter scrapping a vehicle is not the buyer of a new vehicle.
Hence any benefit for buying new vehicles, such as waiver on registration charge etc. needs to be provided in the
form of a tradeable certificate. This would aid the person scrapping his old vehicle to trade the certificate to the
buyer of a new vehicle who can avail the benefits. These are some of the modalities to be considered for successful
implementation of scrappage policy.

Moreover, vehicle tracking system and panic buttons has been made mandatory on buses from January 2019
increasing prices by ~Rs. 10,000-15,000.

Attractive incentives needed to scrap

20 year old truck (current

Incentives needed to scrap . ; 15 year old truck
incentive)

16T MCV 0.4 lac > 0.9 lac

25T MAV 0.4 lac > 1 lac

Number of vehicles available 10,000.20,000 ~600,000

for scrapping

 

Source: CRISIL Research
Implementation of the scrappage policy in low demand scenario of fiscal 2021 may be fraught with peril

Trucks aged below 10 years generally ply on trunk routes as they are generally more fuel efficient and less prone
to breakdown. Older trucks, on the other hand, ply over shorter lead distances typically under market load.

Due to the COVID-19 outbreak, the government allowed for loan moratorium between March and August.
However, the moratorium was not applicable for the delinquent customer (i.e. 90 DPD and above) as on 29th Feb
2020. Thus, repossession of trucks from such delinquent customers rose in QIFY21. In fact, repossession
increased 2.2 times than normal levels in QIFY21. To add to this, more transporters (especially small fleet
operators) who had purchased trucks in 2017, 2018 and 2019 had put their trucks for sale as they were unable to
pay EMIs owing to low fleet utilization at the same time availing moratorium. Medium commercial vehicles,
Multi axle vehicles and T-Trailers were the categories of vehicles that were majorly repossessed or put up for sale
in the secondary market. Because of the increased supply of trucks in the second hand market and lower demand
for trucks, resale values expected to have plummeted ~20-25%.

If the scrappage policy is implemented under these circumstances and leads to incremental CV sales, then the
number of trucks in the trunk routes would increase lowering fleet utilization of transporters in trunk routes further
in this low demand environment.

It is to be noted that given that there is no clarity on the benefits of the proposed scrappage policy or its
implementation schedule. We have not factored this in our current forecast as and when there is more clarity on
this, we will accordingly update our forecasts if required.

Axle norm lowers demand from LFOs transporting bulk goods at rated load as SFOs lose incentive to
overload

The Ministry of Road Transport and Highways had notified new axle load norms for commercial vehicles, which

allow for an increase in the load-bearing capacity of trucks. The new axle norms will be applicable to the entire
fleet of freight-moving trucks — called the ‘population parc’.

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