ICRA RESEARCH SERVICES

INDIAN AUTOMOBILE INDUSTRY

Proposed BS-VI Emission Standards

Contacts:
Subrata Ray Shamsher Dewan Ashish Modani
+91 22 6169 3385 +91 124 4545 328 +91 020 2556 1194
subrata@icraindia.com shamsherd@icraindia.com ashish.modani@icraindia.com
 Whats Inside

1) Executive Summary

2) BS-VI Emission Norms

Salient Features of Proposed BS-VI Norms
Key Implications for OEMs across Vehicle Categories
Key Challenges & Opportunities
Impact on Refinery sector and likely investments

3) Annexure
Technological Evolution in Petrol & Diesel Vehicles across Emission Norms

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 INDIAN AUTOMOBILE SECTOR
Proposed BS-VI Emission Standards
Executive Summary
Proposed BS-VI Emission Norms
would align India to European
Standards by 2020 in a relatively
short-time frame
Automobile industry is unlikely to
see sizeable increase in investments
but execution will be a challenge
Prices of diesel driven vehicles will
increase substantially, thereby
leading to pre-buying in some
segment
Demand for diesel vehicles may
decline further as payback period
will increase to 75,000 km for
Mid-size cars
ICRA Limited
May 2016 ICRA RESEARCH SERVICES
With major cities in India struggling with air quality problem, the Indian Government in February 2016 decided to leapfrog
the Bharat Stage (BS)-V Emission Standards and directly move to more stringent BS-VI norms by April 2020, four years ahead
of the earlier schedule. Globally, emission standards have been implemented in a phased manner with adequate time gap
(typically 4-5 years) between two levels. We believe while availability of technology is unlikely to be a deterrent, the key
challenge for OEMs will be in adapting the available solutions to Indian market conditions in a relatively short time frame,
while making them cost-effective. Further, given the past experience with respect to delays in availability of BS-IV compliant
fuel, the availability of even more cleaner fuel by 2020 on nationwide basis may also become a bottleneck. Our interaction
with industry participants suggests that investments by OEMs are unlikely to be sizeable to meet BS-VI norms; however,
OEMs with higher dependence on diesel models may accelerate their focus on Petrol segment, while hybrids and other clean
technologies would take centre stage in their R&D plans. Overall, the proposed emission standards will push vehicle prices
upwards with diesel segment likely to witness sizeable cost increase due to introduction additional components. This would
make Diesel Passenger Vehicles (PVs) costlier (vis--vis Petrol variants) and consequently may deter demand for Diesel PVs.
Diesel segment likely to witness significant technology up-gradation vis--vis Petrol Vehicles
With proposed BS-VI emission standards being incrementally more stringent for diesel vehicles vis--vis petrol vehicles, the
technology for former is likely to undergo significant up-gradation both within the engine as well as the exhaust system. For
instance, the sharp reduction in NOx levels can be achieved through introduction of new technologies such as Lean NOx Trap
(LNT) (for diesel PVs) and Selective Catalytic Reduction (SCR) (for M&HCVs). In addition, Diesel Particulate Filters (DPFs) would
emerge as the most common solution to control PM emissions from diesel PVs and M&HCVs. Unlike diesel vehicles, the
adherence to BS-VI norms for petrol vehicles can be achieved through improvement in a) air-fuel management (within the
engine) and b) Exhaust Gas Recirculation (within the exhaust system).
Price gap between Petrol & Diesel PVs would expand further, thereby elongating the payback period
As diesel vehicles will undergo significant technology changes, the cost differential between Petrol & Diesel PVs is likely to
expand further. This will widen the payback period for diesel vehicles and adversely impact demand, which is already on a
declining trend since FY 2015 due to narrowing price gap between the two fuels and recent ban on registration of diesel vehicles
(with engine capacity of 2000cc & above) in the National Capital Region (NCR). These factors along with potential risk of
restricting diesel-powered taxis could have significant implications on OEMs investments in the diesel space. More importantly,
OEMs with higher dependence on diesel models (especially in the Utility Vehicle segment) would look at reducing their exposure
and accelerate investments in the petrol segment.
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 Executive Summary
Auto component manufacturers
will play an important role in
redesigning cost-effective solutions
for Indian market
Oil refinery sector will have to
additional investment of ~Rs. 290
billion to upgrade its capacities
An average price hike of
Rs. 0.3/litre may be needed to
generate adequate returns
Two Wheeler segment will also
have to migrate to BS-VI norms as
per the proposed norms
ICRA Limited
Technology is unlikely to be a deterrent while timely execution and fuel availability would be a challenge
We believe availability of technology to meet proposed BS-VI emission standards is unlikely to be a challenge for OEMs as a) most
of them export vehicles to developed markets like Europe, which follow stricter emission standards and b) also have access to
global component manufacturers that develop these technologies. Additionally, most of global component suppliers have R&D
base as well as manufacturing units in India with fair understanding of the Indian market. However, the key challenge for OEMs
and their suppliers would be in adapting these technologies for Indian driving and weather conditions and making them cost-
effective in a relatively short-time frame.
Our interaction with industry participants suggest that lead time in migrating from one emission level to another could be around
3-4 years. This may get further stretched as BS-VI norms OEMs will have to test the vehicles under real driving conditions unlike
the previous norms. This would be of importance for the CV segment, which in India is prone to overloading. As a result of
overloading, it becomes difficult to estimate the inputs (i.e. CO & NOx) going into the exhaust system from an engine. Therefore
the challenge lies in terms of adapting the technology and principles known for Euro 6 to the Indian market.
Besides tight deadlines, the other bottleneck in implementing BS-VI norms in a timely manner would be the availability of BS-VI
compliant fuels on nationwide basis. Given the experience with BS-IV, the industry expects that this may emerge as a key hurdle
in meeting BS-VI norms by 2020.
Refineries require sizeable investments but price increase to generate adequate returns may be limited
As per industry estimates, the refinery sector will also have to incur investment upwards of Rs. 290 billion to upgrade its
capacities in order to produce BS-VI compliant fuel, which mandates a steep reduction in sulphur content from 50 ppm (at
present) to 10 ppm. To fund this, an average price hike of ~Rs. 0.3/litre would be needed to generate adequate return on
incremental investments. However, given the past experience wherein refineries were allowed to pass on a limited premium,
their RoCEs may come under pressure.
Two Wheeler segment is also proposed to migrate to BS-VI by April 2020
At present, 2 & 3 Wheelers in India follow BS-III emission norms, which are also scheduled to upgrade to BS-IV by April 2017.
While in the past emission standards for 2 & 3 Wheelers have been implemented with a lag of 5-6 years (vis--vis those for 4
Wheelers), the Government has proposed that even 2 & 3 Wheelers will also move to BS-VI norms by April 2020. Our interaction
with OEMs and component manufacturers suggest that while there wont be significant changes in engine or aftertreatment
systems to meet BS-IV norms but the industry will have to adopt Electronic Fuel Injection (EFI) system and also tweak the
exhaust system to comply with BS-VI norms. Collectively, these changes will increase cost of 2Ws by approximately Rs. 5,000-
6,000 per vehicle (or ~10% for mid-size motorcycles).
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 Executive Summary
Makers of Engine Control Units,
Fuel Injection System & Particulate
Filters are likely to benefits
ICRA Limited
Select auto component manufacturers likely to benefit from advancement to BS-VI norms
With greater use of electronics and adoption of new technologies such as direct injection (for air-fuel management) and
particulate filters (for exhaust systems), the implementation of BS-VI norms will present a sizeable opportunity for auto
component manufacturers. Companies such as Bosch, Magneti Marelli, Denso and Federal Mogul which have strong presence in
the powertrain segment and have already developed solutions for Euro 6 norms are likely to be the key beneficiaries. The
opportunity for these players will come in the form of a) gaining market share over suppliers of conventional technologies and
b) higher content per vehicle (especially in case of diesel vehicles).
In addition, we also expect some of the engine manufacturers with proven technologies such as Cummins etc. to also be able to
increase their share of business with select OEMs. Nevertheless, the key challenge for auto component suppliers will be to adapt
existing technologies to Indian driving and weather conditions, while making them cost-effective at the same time.
The following report provides insights into the proposed BS-VI Emission Norms and its likely impact on technology along with
vehicle pricing going forward. It also summarizes the change in technology that Petrol & Diesel Vehicles have seen across
various Emission Standards along with pros & cons of available technologies
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 Special Feature BS-VI Emission Standards

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 Emission Norms BS-VI: Salient Features of Proposed BS-VI Norms

Proposed BS-VI norms would align India to European regulations by 2020 in all segments except 3Ws

Proposed BS-VI norms are derived
from Euro 6 standards;
Will cover all segments of the
industry including 2 & 3Ws
Proposed norms mandate sharp
reduction in NOx and Particulate
Matter for Diesel Vehicles;
It also introduces a limit of particle
number (PN)
Unlike previous norms, BS-VI will
validation will be under real driving
conditions
With major cities in India struggling with severe air-quality problems, the Indian Government recently proposed to
leapfrog BS-V emission standards and directly move to the more stringent BS-VI norms by April 2020. Unlike the earlier
norms, the proposed emission standards would be implemented simultaneously across the country and will cover even
the Two & Three Wheelers segment.
With this proposal, the emission standards for automobiles in India will effectively move from BS-III and BS-IV (at
present) to BS-VI in a matter of ~4 years, which will be the first global instance of skipping an intermediate emission
level. Globally, most of the key automobile markets have upgraded the emission norms in a phased-manner with
typically time gap being 4-5 years between two levels.
In comparison to existing emission standards, the proposed BS-VI norms incorporate substantial tightening of NOx and
Particulate Matter (PM) and also implement a limit on particle number (PN). Further, the emission standards are
incrementally far more stringent for diesel vehicles as compared to petrol variants.
The other noteworthy aspect of BS-VI standard is the shift towards real-world driving cycles for evaluation of emission
levels in light-duty vehicles (which will cover PVs and SCVs) and World Harmonized Steady Cycle (WHSC) & World
Harmonized Transient cycle (WTSC) for heavy-duty vehicles (primarily trucks & buses). These testing cycles are more
representative of real-world driving conditions and are able to better capture driving modes when emission levels are
elevated.

Exhibit 1: Evolution of Emission Standards in India (Four Wheelers)

Manufacturer Reference Date Region
India 2000 Euro 1 2000 Nationwide
2001 NCR, Mumbai, Kolkata, Chennai
Bharat Stage-II Euro 2 April 2003 NCR, 11 Cities
April 2005 Nationwide
April 2005 NCR, 11 Cities
Bharat Stage-III Euro 3
April 2010 Nationwide
April 2010 NCR, 13 Cities
India is currently in the midst of July 2015 Additional 29 Cities
moving to BS-IV norms across the Bharat Stage-IV Euro 4 October 2015 North India (including bordering districts of Rajasthan)
country by April 2017 April 2016 Western India & Parts of South and East India
April 2017 Nationwide
Bharat Stage-VI Euro 6 April 2020 Nationwide
Source: diesel.net; ICRA research

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 Emission Norms BS-VI: Salient Features of Proposed BS-VI Norms

Emission norms are incrementally more stringent for Diesel Vehicles; OBD requirements also increased

In addition the proposed BS-VI norms also incorporate enhanced On-Board Diagnostics (OBD) requirements for all
vehicle segments. Interestingly, the two & three wheelers will also be required to implement OBD for the first time
BS-VI norms are fairly
ever. More importantly, the emission norms for two wheelers (i.e. CO, HC & NOx) will become equivalent to proposed
comprehensive when it comes to
BS-VI norms for petrol-driven PVs, thereby implying that BS-VI two wheelers will be as clean as petrol PVs.
On-Board Diagnostics
As mentioned earlier, the proposed emission norms incrementally are far more stringent for diesel vehicles when
compared to their petrol variants. For instance, the proposed norms mandate a reduction of 68% and 82% in NOx and
PM levels in diesel vehicles vis--vis BS-IV norms (refer exhibits 2 & 3). In comparison, the NOx levels in petrol vehicles
are required to drop by 25% vis--vis the current BS-IV norms.

Proposed Emission Standards by vehicle category

Exhibit 2: Proposed Emission Standards for Passenger Vehicles - Petrol

Pollutant Type (In g/Km)
Passenger Vehicles Petrol
Stage CO HC HC+NOx NOx PM PN*^
NOx Reduction of 25% vis--vis BS-IV
Bharat Stage-IV 1.00 0.10 - 0.08 - -
Bharat Stage-VI 1.00 0.10 - 0.06 0.0045 6.0 x 10^11 PM Limited to 0.0045 g/Km
* Applicable for vehicles with Gasoline Direct Injection (DI) technology PN Will be applicable to vehicles using Gasoline Direct
^ In Numbers/Km Injection (GDI) technology

Exhibit 3: Proposed Emission Standards for Passenger Vehicles - Diesel

Pollutant Type (In g/Km) Passenger Vehicles Diesel
Stage CO HC HC+NOx NOx PM PN*^ NOx Reduction of 68% vis--vis BS-IV
Bharat Stage-IV 0.50 - 0.30 0.25 0.0250 - PM Reduction of 82% vis--vis BS-IV
Bharat Stage-VI 0.50 - 0.17 0.08 0.0045 6.0 x 10^11 PN Applicable from BS-VI onwards

Exhibit 4: Proposed Emission Standards for Heavy Commercial Vehicles (GVW >3.5T)
Pollutant Type (In g/Km)
Stage CO HC HC+NOx NOx PM PN*^ Heavy Commercial Vehicles (in WHSC vis--vis ESC)
BS-IV (ESC) 1.50 0.46 - 3.50 0.02 -
NOx Reduction of 87% vis--vis BS-IV
BS-IV (ETC) 4.00 0.55 - 3.50 0.03 -
PM Reduction of 50% vis--vis BS-IV
BS-VI (WHSC) 1.50 0.13 - 0.40 0.01 8.0 x 10^11
BS-VI (WTSC) 4.00 0.16 - 0.46 0.01 6.0 x 10^11 PN Applicable from BS-VI onwards
ESC European Steady Cycle; ETC European Transient Cycle
WHSC World Harmonized Stationary Cycle; WSTC World Harmonized Transient Cycle
PN count for WTSC will be applicable from April 2025

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 Emission Norms BS-VI: Salient Features of Proposed BS-VI Norms

Proposed Emission Standards by vehicle category

Exhibit 5: Proposed Emission Standards for Two Wheelers - Petrol

Pollutant Type (In g/Km) Two Wheelers Petrol
Stage CO HC HC+NOx NOx PM
At present, Two Wheelers follow BS-III norms and is expected to
Bharat Stage-III 1.00 - 1.00 - -
migrate to BS-IV norms by April 2017.
Bharat Stage-IV 1.40 - 0.59-0.79 0.39 -
By April 2020, the Two Wheeler segment will also be required to
Bharat Stage-VI 1.00 0.10 - 0.06 0.0045
# BS-IV norms have varying emission norms based on engine displacement & maximum speed comply with BS-VI norms; This will mandate a shift in technology
The above norms cover maximum speed up to 115 Km/hr from carburetor to electronic fuel injection (EFI) system
More importantly, the emission norms for two wheelers (i.e. CO,
Exhibit 6: Proposed Emission Standards for Three Wheeler - Diesel HC & NOx) will become equivalent to proposed BS-VI norms for
Pollutant Type (In g/Km) petrol-driven PVs
Stage CO HC HC+NOx NOx PM
Bharat Stage-III 0.50 - 0.50 - 0.05 Three Wheelers
Bharat Stage-IV 0.38 - 0.38 - 0.043 The Three Wheeler segment in India is also currently at BS-III
Bharat Stage-VI 0.22 0.10 - 0.10 0.025 norms and is expected to move to BS-IV standards by April 2017
By April 2020, it will also move to BS-VI norms and will see
Exhibit 7: Proposed Emission Standards for Three Wheeler Petrol sizeable changes in technology, particularly in diesel vehicles
Pollutant Type (In g/Km) According to industry experts, the proposed BS-VI norms for
Stage CO HC HC+NOx NOx PM Three Wheelers are relatively less stringent than Euro 5
Bharat Stage-III 1.25 - 1.25 - - standards for similar vehicle category, though should provide
Bharat Stage-IV 0.94 - 0.74-0.94 - - meaningful emission reduction relative to BS-III standards
Bharat Stage-VI 0.44 0.35 - 0.085 -
Source: MORTH Document; ICRA research

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 Emission Norms BS-VI: Key Implications for OEMs

Diesel segment likely to witness significant technology up-gradation vis--vis Petrol Vehicles

With proposed BS-VI norms incrementally being more stringent for diesel vehicles, the technology for diesel vehicles is likely to undergo significant up-gradation
both within the engine as well as the exhaust system. For instance, the sharp reduction in NOx levels can be achieved through introduction of new technologies
such as Lean NOx Trap (LNT) (for diesel PVs) and Selective Catalytic Reduction (SCR) (for M&HCVs). In addition, Diesel Particulate Filters (DPFs) have emerged as
the most common solution to control PM emissions for diesel PVs and M&HCVs, globally. Given the fact that diesel segment will see addition of new components,
OEMs will also be required to modify their designs in order to accommodate additional components like Urea tank in case of HCVs using SCR technology.
Unlike diesel vehicles, the adherence to BS-VI norms for petrol vehicles can be achieved through improvement in a) air-fuel management (within the engine) and
b) EGR (in the exhaust system). At present, majority of the Petrol-driven PVs in India use Multi-Point Fuel Injection (MPFI) as a base technology for air-fuel
management, which was introduced in early 2000s and has been refined over a period of time in line with evolving emission norms. Accordingly, OEMs dont
expect significant technology/design changes in Petrol-driven PVs to meet the new BS-VI norms. However, in case OEMs prefer to adopt Gasoline Direct Injection
(GDI) technology (which offers superior fuel efficiency vis--vis MPFI), the cost of petrol PVs may also go up substantially.

Likely technologies across vehicles categories

Segment Current Technology (BS-III or BS-IV)
Combustion Multi-Point Fuel Injection
Passenger Vehicles Petrol
Exhaust Three Way Catalytic Converter
Combustion Common Rail Direct Injection
Passenger Vehicles Diesel (CRDi) with Turbocharger & EGR
Exhaust Diesel Oxidation Catalyst (DOC)
Exhaust DOC in BS-III
Light & Medium CVs
Exhaust EGR or SCR in BS-IV
Exhaust DOC in BS-III
Heavy CVs
Exhaust EGR or SCR in BS-IV
Combustion Carburetor
Two Wheelers
Exhaust Three Way Catalytic Converter
Source: Industry Data; ICRA research
Technology to meet BS-VI Norms Cost Implications
Improved version of MPFI & Three Way
Rs. 20,000-30,000 per vehicle
Catalytic Converter; Engine downsizing
(4-6% of vehicle cost)
Or
It may go significantly if OEMs switch to
Combustion Gasoline Direct Injection
GDI technology
Exhaust Gasoline Particulate Filter
Main changes in fuel injection system
Rs. 75,000-100,000 per vehicle
Exhaust LNT for controlling NOx levels
(10-12% of vehicle cost)
Exhaust DPF for controlling PM levels
Combustion High Pressure Direct Injection
Engine cost could go up by ~50% from a
Exhaust DOC for CO and HC levels
base level of Rs. 200,000 (for BS-IV)
Exhaust EGR + SCR for NOx levels
Exhaust DPF for PM levels
Combustion High Pressure Direct Injection
Exhaust DOC for CO and HC levels Engine cost could up by ~50% from a
Exhaust EGR + SCR for NOx levels base level of Rs. 300,000 (for BS-IV)
Exhaust DPF for PM levels
Combustion Electronic Fuel Injection (EFI) Rs. 5,000-6,000 per vehicle
Exhaust Three Way Catalytic Converter (~10% of vehicle cost)

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 Emission Norms BS-VI: Price hikes would vary across segments with diesel vehicles likely to see significant increase

Price gap between Petrol & Diesel Vehicles to expand further, thereby extending the payback period
Diesel vehicles will see introduction
Overall, our interaction with industry participants suggest that cost petrol PVs may increase by 20,000-30,000/vehicle,
of LNT (in PVs) and SCR (in HCVs) to
while the increase for diesel PVs could be in the range of Rs. 75,000-100,000/vehicle. For M&HCVs, the cost differential
control NOx and DPFs for PM
is expected to be even higher (~Rs. 100,000-150,000 or ~10% of current vehicle cost) due to almost compulsory
introduction of SCR system along with improvements in EGR.
While we expect OEMs (along with their suppliers) to find solutions that are adaptable to India conditions and cost-
Diesel Vehicles will get costlier with effective, the industry is likely to pass on the increase in cost to a large extent. The impact is likely to be felt the most
average price gap likely to widen to on diesel vehicles and especially PVs where the price differential with petrol variants will further increase. This will
~Rs. 150,000 for Mid-Size Cars increase the payback period for diesel vehicles (refer exhibit 9) and deter demand, which has already been on a
declining trend over the past couple of years due to narrowing price gap between the two fuels and recent ban on
registration of 2000cc & above diesel vehicles in National Capital Region (NCR).

Exhibit 9: Payback period for Diesel Passenger Vehicles will extend further
At Present (2016) Post BS-VI Norms (2020)
Price Gap between Diesel & Petrol Vehicle^ ~Rs. 100,000 ~Rs. 150,000
Payback period will expand to Petrol Prices (Rs./Litre)* Rs. 64.1 Rs. 64.1
~75,000 km Diesel Prices (Rs./Litre)* Rs. 52.9 Rs. 52.9
Payback to recover additional cost of Diesel Vehicle ~50,000 Km/~5 Years ~75,000/~7.5 Years
Source: IOCL Website; ICRA research; * Average for Delhi, Mumbai, Chennai & Kolkata; ^ For Compact Hatchback
Share of Diesel Vehicles in the
Petrol vs. Diesel Mix for PV Industry FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
industry declined to 44% in FY 2016
Petrol (%) 52.0% 42.0% 47.0% 52.0% 56.0%
Diesel (%) 48.0% 58.0% 53.0% 48.0% 44.0%
Price Gap in both fuels (%) 24.2 23.4 18.1 12.4 14.8
Source: ICRA research
We are also of the view that the key challenge for the industry will be on the execution front rather than availability of
Emission control technology for
technology. As most of the OEMs export vehicles to developed markets like Europe (especially PVs) and have tie-ups
Euro 6 norms has got matured with
with foreign component manufacturers, access to technology is unlikely to be a deterrent. However, adapting the same
minimal impact on fuel efficiency
to Indian driving and weather conditions and making it cost-effective could have a lead time of 3-4 years. Further,
OEMs will have to test vehicles under real driving conditions, which could elongate the validation cycle.

OEMs in India are likely to leverage This would particularly be of importance for the CV segment, which in India is prone to overloading by fleet operators.
on the experience of global auto Due to overloading, engine is strained to perform and subsequently emits higher level of pollutants. Accordingly, it
component makers becomes difficult to estimate the inputs (i.e. CO & NOx) going into the exhaust system from an engine. Therefore the
challenge lies in terms of adapting the technology and principles known for Euro 6 for Indian market.

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 Emission Norms BS-VI: Two Wheeler segment is also proposed to migrate to BS-VI norms by April 2020

Likely to see a price hike of ~10% with the adoption of EFI technology

Compliance to BS-VI standards in
Two Wheelers will see mandatory
introduction of Electronic Fuel
Injection (EFI) technology
EFI technology may cost around Rs.
5,000-6,000 per vehicle,
representing 10% of vehicle cost
At present, 2 & 3 Wheelers in India follow BS-III emission norms, which are also expected to move to BS-IV by April
2017. While in the past emission standards for 2 & 3 Wheelers have been implemented with a lag of 5-6 years (vis--vis
those for 4 Wheelers), the Government has proposed that even 2 & 3 Wheelers will also move to BS-VI by April 2020.
Our interaction with OEMs and component manufacturers suggest that while there wont be significant changes in
engine or aftertreatment systems to meet BS-IV norms, for BS-VI standards, the industry will have to adopt Electronic
Fuel Injection (EFI) system and also tweak the exhaust system. Collectively, these changes will increase cost of 2Ws by
approximately Rs. 5,000-6,000 (or ~10% for mid-size motorcycle).
In India, most of the two wheeler use carburetor as a device to mix air & fuel. However, in order to meet stringent
emission standards post BS-IV, 2W OEMs will have to switch to electronically controlled fuel injection systems going
forward. In contrast to carburetor, fuel injection systems allow more precision in air-fuel mixture control. This can be
achieved either through port fuel injection system, direct injection system or electronic carburetors.

Technology is unlikely to be a constraint as OEMs have tied-up with foreign players

OEMs in India have tied up with
international vendors to source EFIs
well in time
Select models in the Indian 2W market are already equipped with EFI technology; however, at present these variants
mostly symbolize the OEMs readiness to meet tighter emission norms of the future without much contribution to sales
volumes as of now due to the large cost differential with their carburetor counterparts.
Apart from modification in the engine, 2W OEMs will also have to incorporate changes in the exhaust system in order
to reduce emissions coming out of the tailpipe. Currently, most BS-III compliant 2Ws in India use oxidation catalytic
converter to control CO and HC limits. Going forward, as and when electronic fuel injections systems come into vogue,
the exhaust systems in 2Ws may also be substituted with three way catalytic converters, which are common in Petrol
cars.

Keihin and Magneti Marelli are the key players in the two wheeler segment

Globally, Keihin and Magneti Marelli are the largest suppliers of fuel injection system to 2W OEMs. In India, Hero
Motocorp has formed a JV with Magneti Marelli (HMC MM Auto Limited), which is currently in the process of setting
up a manufacturing unit in India for producing EFIs. Among the other 2W OEMs, while Honda also sources its
requirement of EFIs from Keihin; Bajaj Auto, TVS and Royal Enfield are expected to source the same from Bosch.

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 Emission Norms BS-VI: Availability of BS-VI compliant will be another challenge

Refineries require sizeable investments but price increase to generate adequate returns may be limited

Besides tight deadlines, the other key challenge in implementing BS-VI norms in a timely manner will be the availability
of BS-VI compliant fuels on nationwide basis. Given the experience with BS-IV, the industry expects that this may
emerge as a key bottleneck in meeting BS-VI norms by 2020.
As per industry estimates, the refinery sector will have to incur investment upwards of Rs. 290 billion to upgrade its
Industry expects an investment of capacities in order to produce BS-VI compliant fuel, which mandates a steep reduction in sulphur content from 50 ppm
Rs. 290 billion in upgrading refinery (at present) to 10 ppm. To fund this, an average price hike of Rs. 0.3/litre will be needed (refer exhibit 12) to generate
capacities adequate return on incremental investment. However, given the past experience wherein refineries were allowed to
pass on a limited premium, their RoCE could come under pressure.
The impact could be higher for PSU refineries as they would have to incur disproportionately larger share of
investments owing to the vintage of their plants. Comparatively, part of the capacities in the private sectors is already
capable of refining high sulphur crude, which will provide them a competitive advantage.

Exhibit 11: Sulphur Content Norms for Petrol & Diesel by Emission Norms
Sulphur Content Sulphur Content
Emission Norms
in Petrol (in ppm) in Diesel (in ppm)
Bharat Stage I 500 2,000
Sulphur content in BS-V/VI fuel is Bharat Stage II 500 500
expected to reduce to 10 ppm from Bharat Stage IIII 150 350
50 ppm (in BS-IV) Bharat Stage IV 50 50
Bharat Stage V & VI* 10 10
Source: MORTH Documents; ICRA research; * Sulphur Content levels are same for BS-V & BS-VI norms

Exhibit 12: Price hikes required to generate adequate returns on fuel up-gradation projects
Scenario 1 Scenario II Scenario III
Capex required for upgrading refineries to BS-VI Norms (Rs. Billion) 300.0 400.0 500.0
Desired Return on Capital Employed (RoCE) (%) 12.0% 12.0% 12.0%
Average fuel price hike of 0.5-1% Total Fuel Consumption in FY 2020e* (In Billion Litres) 125.3 125.3 125.3
will be required to generate Price hike required to generated adequate returns (Rs./Litre) 0.28 0.38 0.48
Effective Refinery Transfer Price Petrol (Rs./Litre) 22.90 22.99 23.09
adequate returns on investments
Retail Selling Price Petrol (Rs./Litre) Delhi 62.54 62.67 62.79
for up-gradation of refineries
Refinery Transfer Price Diesel (Rs./Litre) 22.01 22.10 22.20
Retail Selling Price Diesel (Rs./Litre) Delhi 50.71 50.82 50.93
Source: PPAC; ICRA research; * Assuming CAGR of 7% and 3% for Petrol & Diesel, respectively over consumption in FY 2016

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Ph : +91-22-30470000,
24331046/53/62/74/86/87
Fax : +91-22-2433 1390
E-mail: shivakumar@icraindia.com
GURGAON
Mr. Vivek Mathur
Mobile: 9871221122
Building No. 8, 2nd Floor,
Tower A, DLF Cyber City, Phase II,
Gurgaon 122002
Ph: +91-124-4545300, 4545800
Fax; +91-124-4545350
E-mail: vivek@icraindia.com
ICRA Limited
ICRA Contact Details
CHENNAI
Mr. Jayanta Chatterjee
Mobile: 9845022459
5th Floor, Karumuttu Centre,
498 Anna Salai, Nandanam,
Chennai-600035.
Tel: +91-44-45964300,
24340043/9659/8080
Fax:91-44-24343663
E-mail: jayantac@icraindia.com
KOLKATA
Ms. Vinita Baid
Mobile: 9007884229
A-10 & 11, 3rd Floor, FMC Fortuna,
234/ 3A, A.J.C. Bose Road,
Kolkata-700020.
Tel: +91-33-22876617/ 8839,
22800008, 22831411
Fax: +91-33-2287 0728
E-mail: Vinita.baid@icraindia.com
AHMEDABAD
Mr. Animesh Bhabhalia
Mobile: 9824029432
907 & 908 Sakar -II, Ellisbridge,
Ahmedabad- 380006
Tel: +91-79-26585049/2008/5494,
Fax:+91-79- 2648 4924
E-mail: animesh@icraindia.com
HYDERABAD
Mr. M.S.K. Aditya
Mobile: 9963253777
301, CONCOURSE, 3rd Floor,
No. 7-1-58, Ameerpet,
Hyderabad 500 016.
Tel: +91-40-23735061, 23737251
Fax: +91-40- 2373 5152
E-mail: adityamsk@icraindia.com
PUNE
Mr. L. Shivakumar
Mobile: 9821086490
5A, 5th Floor, Symphony,
S. No. 210, CTS 3202,
Range Hills Road, Shivajinagar,
Pune-411 020
Tel : +91- 20- 25561194,
25560195/196,
Fax : +91- 20- 2553 9231
E-mail: shivakumar@icraindia.com
BANGALORE
Mr. Jayanta Chatterjee
Mobile: 9845022459
'The Millenia', Tower B,
Unit No. 1004, 10th Floor,
Level 2, 12-14, 1 & 2, Murphy Road,
Bangalore - 560 008
Tel: +91-80-43326400,
Fax: +91-80-43326409
E-mail: jayantac@icraindia.com
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 CORPORATE OFFICE
Building No. 8, 2nd Floor, Tower A; DLF Cyber City, Phase II; Gurgaon 122 002
Tel: +91 124 4545300; Fax: +91 124 4545350
Email: info@icraindia.com, Website: www.icra.in

REGISTERED OFFICE
th
1105, Kailash Building, 11 Floor; 26 Kasturba Gandhi Marg; New Delhi 110001
Tel: +91 11 23357940-50; Fax: +91 11 23357014

Branches: Mumbai: Tel.: + (91 22) 24331046/53/62/74/86/87, Fax: + (91 22) 2433 1390 Chennai: Tel + (91 44) 2434 0043/9659/8080, 2433 0724/
3293/3294, Fax + (91 44) 2434 3663 Kolkata: Tel + (91 33) 2287 8839 /2287 6617/ 2283 1411/ 2280 0008, Fax + (91 33) 2287 0728 Bangalore: Tel + (91
80) 2559 7401/4049 Fax + (91 80) 559 4065 Ahmedabad: Tel + (91 79) 2658 4924/5049/2008, Fax + (91 79) 2658 4924 Hyderabad: Tel +(91 40) 2373
5061/7251, Fax + (91 40) 2373 5152 Pune: Tel + (91 20) 2552 0194/95/96, Fax + (91 20) 553 9231

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