Auto stocks rally as GST Council set to mull tax cut on two-wheelers

Shares of automobile companies were in focus at the bourses on Wednesday after Finance Minister Nirmala Sitharaman said the Goods and Services Tax (GST) Council would look into the auto industry’s demand for lowering the tax rate on two-wheelers, which are now taxed at the highest slab rate of 28 per cent.


“Since two-wheelers are neither a luxury nor a sin product, they merit a rate revision. Consequently, this will be taken up with the GST Council,” Sitharaman said during an interaction with members of the Confederation of Indian Industry (CII) yesterday.


At 10:10 AM, the Nifty Auto index, the top sectoral gainer, was trading 1.44 per cent higher as compared to a flat Nifty50 index.


Among individual stocks, TVS Motor gained the most 7 per cent at Rs 477, followed by Hero MotoCorp which rose 5 per cent to  fresh 52-week high of Rs 3,116.95. Besides, Bajaj Auto, Tata Motors, Mahindra & Mahindra, Eicher Motors were up in the range of 2-4 per cent. Ashok Leyland climbed 1.35 per cent at Rs 70.90 and Maruti Suzuki gained 0.67 per cent at Rs 7158.


Auto ancillary stocks also gained, with Balkrishna Industries, Exide, Motherson Sumi, and Bosch all trading over 1 per cent higher each.


The GST Council, slated to meet on Thursday, has the single-point agenda of compensation to states, but sources familiar with the developments said the meeting on September 17 might take up the two-wheeler rate issue to spur sales ahead of the festive season.


The passenger vehicles industry has been requesting the government to consider a phase-wise reduction in GST on automobiles, cutting rates on two-wheelers in the first stage, and deferring the tax cut on four-wheelers to a later stage. This, the industry said, would help the government contain potential revenue loss, and at the same time provide relief to around 20 million potential two-wheeler buyers across the country.


Tata Motors gained as much as 3.46 per cent at Rs 131.50 on the NSE. The Tata Motors group has set a target of reducing its consolidated automotive net debt (excludes the company’s vehicle finance business) to near zero in the next three years, the company’s Chairman N Chandrasekaran (Chandra) told shareholders at the 75th annual general meeting yesterday.


“Currently the group has a net automotive debt of Rs 48,000 crore and we are deleveraging this business substantially. The target is to bring it to near zero debt levels in the next three years,” he said.


Sharpening the brand portfolio, enhancing the sales and service experience, and sustainable mobility will be some areas that will top the company’s priorities, said Chandra.


At the end of 2019-20 (FY20), the firm’s net debt to equity ratio stood at 0.87, the highest in a decade, according the data from the company, Capitaline, and Prowess.


Going forward, other auto companies are expecting the demand to return, especially ahead of the festive season.


Hero MotoCorp's management provided a robust outlook after announcing its June quarter results. The firm's management indicated that rural demand indicators — be it fertiliser sales in July, tractor registration figures, monsoon, or crop planting — are at healthy levels. This, coupled with a preference for personal mobility, drove demand.


In a post earnings call, Eicher Motors' Managing Director Siddhartha Lal had also spoken about the "rapid recovery in demand".


“Towards the end of the quarter we’ve witnessed encouraging consumer sentiment which was evident in our sales for the month of June. We believe that this trend will continue into this quarter as well," Lal had said..