Macro Economy

No boost for CVs; bonanza for SUVs, bikes

Parvatha Vardhini C BL Research Bureau | Updated on March 12, 2018 Published on February 17, 2014

Some manufacturers may choose to pass on benefits to customers

The interim budget has handed out the most excise duty cuts to the slowdown-hit automobile industry.

And some segments of the industry may be better placed to benefit than others.

Excise duty cuts from 12 to 8 per cent, lasting for just three months, may not materially lift demand for commercial-vehicle makers such as Ashok Leyland and Tata Motors.

The segment is still struggling to cope with the longest ever cyclical downturn that it has faced.

With economic growth not expected to pick up anytime soon, the lack of industrial activity and non-availability of adequate freight will continue to plague the industry.

Fleet owners are unlikely to buy new trucks just because duty cuts make them cheaper.

Good run for two-wheelers

Two-wheeler makers, in contrast, don’t actually need the excise duty cuts from 12 to 8 per cent to rev up sales.

Motorcycle sales have accelerated strongly in the last few months, thanks to good monsoons and higher minimum prices for crops, which has put more money in the hands of rural India.

The story is similar for scooters, which have seen sales increase by 20 per cent so far this fiscal year.

Here manufacturers such as Hero Honda, Bajaj Auto and TVS Motors may choose to retain part of the 4 per cent boost to their profit margin.

Or they may pass it on to consumers through limited period offers that drive up sales.

The segments that will really benefit from the duty cuts will be cars (excise duty trimmed from 12 to 8 per cent) and utility vehicles (30 to 24 per cent), particularly manufacturers such as Maruti and M&M.

With elections round the corner and utility vehicle sales usually seeing a spurt ahead of polls, excise duty cuts may be just what the industry needs to put vehicles on a discount sale to woo eager buyers.

Utility vehicle sales have dropped by 5 per cent so far this fiscal as rising diesel prices made them less appealing. But selling price cuts could trigger a reversal in this trend.

For most vehicle manufacturers, however, there is ample room to pass on the benefit from the excise duty cuts to customers without hurting their profit margins.

Margins maintained

With raw material prices remaining range-bound in recent times, companies have been able to maintain or even improve their profit margins this fiscal year.

The opportunity to reduce selling prices can provide a lift to volumes in the first (April-June) quarter of the next financial year.

Thereafter, all depends on whether the excise sops are extended beyond three months, by the next Government.

Published on February 17, 2014
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