New emission norms for tractors unlikely to create major headwinds for industry: ICRA

Ratings agency ICRA on Thursday said the proposed Bharat Trem IV emission norms for domestic tractor industry slated to be implemented from October is unlikely to create major headwinds for the sector.

The new emission norms will only be applicable for tractors with capacity above 50HP (horse power), which accounts for only 13 per cent of the industry sales in unit terms and hence the less likelihood of the new emission norms becoming a major hurdle for the industry, ICRA Ratings said in a statement.

The rest of the industry, i.e. tractors below 50HP, will migrate to the new norms only from October 2023.

ICRA Ltd AVP, Corporate Sector Ratings Rohan Gupta said, although major technological changes, including both engine and after treatment technologies are required to migrate to Bharat Trem IV, the technological know is readily available with OEMs (original equipment manufacturer) as they are already exporting to various countries meeting evolved emission norms guidelines.

"However, the pass through of the incremental cost, related to the technological changes, to the farmers is likely to prove to be a challenge, given the price sensitive nature of the farming community," he added.

While OEMs are yet to announce revised prices for tractors complying with the new emission norms, he said there could be an increase of around 10-12 per cent in price.

A complete pass through of the increased prices would be unlikely and the same could constrain profitability indicators of tractor OEMs to an extent, Gupta added.

The tractor industry across all HP categories in India currently complies with TREM III A emission norms, which were implemented back in April 2010 and April 2011 in a phased-wise manner.

The evolution to new norms is in line with the broader automobile industry in India which will be migrating to Bharat State (BS-VI) emission norms from April 2020.

"Overall, given that the proposed evolution to Bharat Trem IV is restricted to only the high HP segment, the impact of the proposed emission norms evolution on the demand in the industry is likely to be much lower than the disruption seen across other automobile segments,' ICRA said.

OEMs are also expected to make an effort to rejig their portfolio to an extent through launch of products under new HP categories with a view of limiting the impact of the same, it added.