Higher fitness fees to lift CV demand, PV earnings upgrades on the horizon: BNP Paribas

The government’s move to raise fitness test fees for older vehicles is expected to support India’s vehicle scrappage plans and gradually boost demand for new commercial vehicles, according to Kumar Rakesh, India Analyst – Auto & IT at BNP Paribas.Speaking to CNBC-TV18, Rakesh said the scrappage policy has existed for a few years but has not yet triggered major replacement demand. However, the latest step — a steep hike in fitness certificate fees for vehicles older than 15 years — could help accelerate the shift.
With the higher fitness cost, he expects “more of scrappage happening in the country, and incrementally driving more positive demand for the new vehicle purchase.”
Under the new rules, the age slab for higher fitness-test fees has been shifted from 15 years to 10 years. The government has also introduced three clear age categories: 10-15 years, 15-20 years, and more than 20 years. Each category now carries a higher fee as the vehicle gets older.A large number of very old and highly polluting vehicles, including BS-III models, are still running on Indian roads. These vehicles were built under lenient emission norms and, after 15–20 years of use, their pollution levels have increased even further.

He believes the government’s move will help push more owners toward newer, cleaner models that follow global emission standards, which should reduce overall pollution.

Rakesh said that boosting new vehicle sales is not the main goal of the policy, but it will likely influence buying patterns.

Rakesh said that recent market trends show early signs of a pickup in commercial vehicle demand. He believes the heavy commercial vehicle segment has likely moved past its weakest phase, supported by rising diesel consumption and steady freight rates.

According to him, several indicators now point to better demand over the coming months, helped by a low base from last year.

He also noted that light commercial vehicles are benefiting from higher GST-related activity, with enquiries improving in recent weeks.

Rakesh expects both heavy and light commercial vehicle categories to see a gradual recovery from here.

For the passenger vehicle segment, Rakesh expects the biggest benefit of GST rate cuts to be visible from the December quarter onwards. The September quarter did not fully capture this benefit.

He said that if strong demand continues and margins improve, earnings upgrades for passenger vehicle companies could be meaningful. Stocks like Maruti Suzuki have already performed well, but earnings upgrades so far have been modest.

“We think there is still more room left,” he said, adding that if demand sustains and margins expand, more upgrades and valuation re-rating could follow.