Jaguar Land Rover to benefit as China cuts duty on imported cars to 10%

 

JLR launches Range Rover Velar SUV, price starts at Rs 7.88 million

Rohit Suri, President & Managing Director, Jaguar Land Rover India Ltd at the launch of Range Rover Velar. BS Photo by Sanjay K Sharma

 

  China’s finance ministry on Tuesday said the levy on imported cars in the country will be reduced from the current 25 per cent to 10 per cent from 1 July, Bloomberg reported. Among global luxury carmakers, Tata Motors-owned Jaguar Land Rover Automotive will be a beneficiary of the proposed duty cut. 

 

Like its German rivals BMW and Mercedes, JLR counts China as one of its most important markets both in terms of volume, as well as, profitability. As per analyst’s estimates, the region accounts for 26 per cent approximately at the Ebitda (earnings before interest, tax, depreciation and amortisation) level in company’s earnings. Its contribution in volume terms in total sales in 28 per cent.  In April, JLR retailed a total of 45180 units of which China accounted for 12970 units, up 29 per cent over a year ago period.  A spokesperson at Tata Motors declined to comment ahead of company’s earnings tomorrow. An email sent to JLR’s spokesperson remained unanswered.

The duty cut will further open up a market that’s been a chief target of the US in its trade fight with the world’s second-largest economy, Bloomberg said. The current 25 per cent duty has been in place for more than a decade. The move will help automakers from India to Europe to accelerate sales in one of the biggest luxury car markets of the world.

“If the import duty is cut, it will be a big positive for JLR operations in China,” said Bharat Gianani, analyst at Sharekhan. Six out of every ten model that JLR sells in China is made locally the rest is imported from UK.  Another company that will gain from the duty cut is Motherson Sumi which counts Audi and Mercedes as its key customers.  The reduction in tax will make models more affordable and boost sales, he said.  The level of impact will be governed by the extent to which the companies pass on the benefits to the buyers, he added.

To be sure, the proposed move to pare duty has come at a time when JLR has been facing strong headwinds in Europe owing to increased taxation on diesel cars, which in turn have spooked investors. In the last one year, Tata Motors stocks have dropped 31.6 per cent underperforming the Sensex as well as the auto index. Snapping a declining streak, the stock closed at Rs 307.70, up 4 per cent on Tuesday.  

Mahantesh Sabarad, head, retail research at SBICAPS said while the duty cut is likely to boost company’s China volumes, “there wouldn’t be an immediate, material impact on margins.” In the long run China being one of the most profitable markets, the cut could help in improving the margin profile as volume contribution from the region goes up. The company will have to adjust pricing of the locally made models in line with the prices of the competing imported products prices of which would be revised downwards after the duty cut.