The Ministry of Road Transport & Highways (MoRTH), vide its notification on January 25, 2020 has proposed to introduce a green tax on transport vehicles (buses, taxis, trucks) older than eight years in the range of 10-25% of the applicable road tax. For personal vehicles, green tax is proposed for vehicles older than 15 years (rates not specified yet). This green tax could be higher (50% of road tax) for vehicles in highly polluted cities. Approval for the proposal is now pending with state governments given road tax is a state subject, post which it is expected to be notified in due course of time. The government has also approved a policy for scrapping government owned vehicles (including PSU owned) older than 15 years. The policy is yet to be notified and will come into effect from April 1, 2022.
Road tax, being a state subject, differs from state to state depending upon the vehicle type, fuel usage, build, tonnage, capacity etc. The step is on the lines of the 'polluter pays' principle and outlines government intent to firmly tackle the issue of vehicular pollution. It will also promote sale of less polluting BS-VI compliant vehicles. However, at this point of time, it is difficult to quantify the additional demand that it is bound to generate. The potential beneficiaries of the above move will be the entire commercial vehicle (CV) value chain ranging from OEM players to auto ancillaries including tyre players as well as tyre ancillaries. Our preferred pick will be Ashok Leyland in the auto OEM space, MM Forging in the auto ancillary space, JK Tyre in the tyre space and Phillips Carbon Black in the tyre ancillary space. However, with corporate results season underway, we abstain from changing our assumptions/financials/rating of the potential beneficiaries with updated reports on them expected post quarterly results in due course of time. We await the larger scrappage policy encompassing the entire vehicle fleet including the much bigger pie of private vehicles.
For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_Auto_SectorUpdate_Jan21.pdf