Govt decision to limit export incentives under MEIS to hurt TVS Motor most

For a sector struggling to overcome the sharp drop in demand both in India and overseas markets, reports that the government will limit export incentives under the Merchandise Exports from India Scheme (MEIS) is expected to impact two wheeler exporters Bajaj Auto and TVS Motor the most. 


MEIS benefits will be restricted to Rs 2 crore per exporter from September 1 to December 31 this year and benefits may be discontinued from January 1, 2021. MEIS incentives for exports to less developed countries are higher, but on average they are about 2 per cent of export revenues. 


Analysts at Nomura Research believe among companies with high export revenues, TVS Motor will get impacted the most as FY20 export incentives accounted for 14 per cent of its operating profit and nearly a quarter of its profit before taxes. For Bharat Forge the impact was 13-19 per cent on operating and pre-tax profits. 


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While Bajaj Auto’s exports at over Rs 12,000 crore are by far the largest among listed auto players, its impact on operating profit and pre-tax profit is much lower at high single digits given higher base and other income. Balkrishna Industries, which gets about 81 per cent of its revenues from exports, is another player which will be impacted by the proposed changes with the impact at 6-8 per cent. While the government is looking at introducing an alternate scheme, the timing and the proportion of incentives is unclear.  


What could impact the companies struggling with underutilised capacities is a sharp rise in commodity costs which are up 150 basis points since the June quarter. The impact due to the delayed pass through could hit the auto majors from December quarter onwards. 

  MEIS impact                    FY20 figures in Rs crore  Bajaj Auto  TVS Motor Balkrishna Industries Bharat Forge Export revenues  12,216 4,552 3,872 2,650 Export incentives  459 187 94 132 % of Ebidta  9 14 7 13 % of PBT  7 25 8 19           MEIS: Merchandise Exports from India Scheme     Ebidta: earnings before interest, depreciation, tax and amortisation   Source: Nomura Research