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MUMBAI: Shares of two-wheeler majors Hero MotoCorp Ltd, Bajaj Auto Ltd, and TVS Motor Co Ltd gained 2-5% on Wednesday after finance minister Nirmala Sitharaman endorsed the necessity for a cut in items and providers (GST) tax on two-wheelers. “This will be taken up with the GST Council,” Sitharaman stated at an trade occasion.
A cut in tax charges from the current 28% can carry down costs of two-wheelers, which in flip would enhance gross sales, particularly within the price-sensitive entry degree and financial system segments.
“Consumers are sensitive to prices. So definitely a price cut will create a certain interest from buyers,” stated Mahantesh Sabarad, head-retail analysis, SBICAP Securities.
If accredited by states, the tax cut will assist demand restoration of two-wheelers. Of the three listed producers Hero MotorCorp derives a larger portion of its revenues from India. It has larger publicity to rural and semi-urban areas the place demand has been much less hit and is a market chief within the price-sensitive entry and government section bikes. Comparatively Bajaj Auto and TVS Motor have sizable three-wheeler and export companies.
This will assist Hero MotoCorp capitalise higher on a tax cut. Monthly gross sales numbers additionally point out a quicker restoration for the corporate. While Hero MotoCorp’s home two-wheeler July gross sales almost caught up with year-ago numbers, down simply 1%, Bajaj Auto and TVS Motor clocked 9-11% fall.
Not surprisingly traders are enthused. The inventory hit a new 52-week high on Wednesday.
“Hero MotoCorp is more rural facing than its peers and hence should benefit from rising farm income and government measures to support farmers through employment schemes and reforms,” Kim Eng Securities stated in a notice. “We forecast Hero MotoCorp’s earnings to achieve its FY20 level by FY22, aided by rising rural demand, benefit of operating leverage and savings in discretionary costs.”
Still, warning is warranted.
Much is determined by the quantum of the rate cut. Also states should comply with the Centre’s proposal. “Tax cut would mean lower revenues for them. States may as well compensate the revenue loss by raising road tax. So, we have to await the end result,” added Sabarad of SBICAP Securities.
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