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Impact on companies in Automobile sector

Issues

• Excise duty cut in passenger cars and utility vehicles
• Stiffer control on import of cars, multi-utility vehicles, mopeds and autorickshaws

Initiatives

• Excise on 2-wheelers cut to 16 per cent
• Excise on cars snipped to 32%
• Depreciation @ 50% on new commercial vehicles for a year

Post-budget show - Underperformed

The budget has given a major fillip to the industry. The reduction in excise duty on two wheelers from 24 per cent to 16 per cent and on cars from 40 per cent to 32 per cent has come as a relief.

The hike in effective customs duty to 180 per cent will shield the industry from second-hand car imports. While the accelerated depreciation of 50 per cent for new commercial vehicles for a year will benefit manufacturers, the free inter-state movement of foodgrain and agricultural produce will boost sales.

Tata Engineering

The company stands to benefit on all fronts. While the excise duty on passenger cars has been reduced by 8 per cent, that on utility vehicles has remained at the earlier level. The accelerated depreciation of 50% on commercial vehicles for a year also bodes well. Besides, the increase in effective customs duty on second-hand imports of cars and multi-utility vehicles will substantially safeguard the company from imports.

Ashok Leyland

It has been one of the least affected by the slowdown in demand for commercial vehicles . The accelerated depreciation of 50 % on new commercial vehicles for a year will benefit the company. Besides, initiatives towards road development (including rural roads, National Highway Development Programme) and the abolishment of ban on inter-state movement of foodgrain will go a long way in improving sales.

Mahindra & Mahindra

The reduction of excise duty on utility vehicles with passenger carrying capacity of less that seven will benefit Mahindra & Mahindra as almost 15 per cent of its sales in financial year 2000 accrued from utility vehicles with a passenger capacity of six. Besides, with a major chunk of the company's sales coming from the rural sector, the initiative at spurring rural growth in the budget comes as a shot in the arm.

Hero Honda

The company will benefit from the reduction in excise duty from 24 per cent to 16 per cent. It has been offering around 10-12 per cent discount on the sticker price through dealers to boost sales. With the current reduction, the company will be able to pass on the benefits of lower prices, thus generating volume-driven growth.

Bajaj Auto

One of the largest manufacturers of two wheelers globally, the Pune-based Bajaj Auto is poised to benefit immensely on account of the 8 per cent reduction in excise duty. Also, the increase in effective customs duty on second-hand imports of scooters and motorcycles will shield the company from the threat of imports.

Eicher

Almost 65 per cent of the company's tractor sales for FY 2000 accrued from units with less than 25 horse power (hp).

While it has shifted focus towards higher HP tractors, the 1 per cent reduction in interest rate from the Nabard and the 24 per cent increase in credit for agriculture production will spur rural demand.

Source: Business Standard

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