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NOMURA ON AUTOS

GST rate cut could lead to more upside

Highest upside potential for M&M, Maruti, Ashok Leyland & TVS

Within suppliers, preference for domestic cos (Uno Minda, Samvardhana & Sansera)

REPORTS ON LIKELY GST RATE CUT

Auto sector could potentially see a reduction in tax rate

Rate for ICE small cars & 2-wheelers to reduce to 18% from 28%

Large cars could see a reduction from 43-50% to 40%

Risk of motorcycles of more than 350cc may see an increase to 40% GST rate from 31%

GST RATE CUT & THE IMPACT

May have a multiplier effect of 1-1.5x, implying 5-10% increase in demand

Popular models are likely to see sizable price cuts

WagonR may see price cut of 9%, Bolero by 10%, Brezza & Creta by 3% & XUV700 by 7%

Exposure to small car slab at 68% for Maruti & 52% for M&M incl LCVs

In anticipation of tax cut, sales have slowed down substantially

GST revenue loss impact of such a move likely at ₹74,000 cr

Assuming 10% higher volumes, the loss reduces to ₹54,000 CR

LIKELY GST RATE CUT: MAJOR BENEFICIARIES

Benefit is likely to be larger for 4W OEMs than 2W OEMs

2W OEMs likely to face costs related to ABS implementation

ABS mandate may shave 50% (₹3,000-4,000) off the benefit by next year

Eicher which already has its portfolio on ABS, may benefit more from a GST cut

100-150 bps margin improvement potential for all 4W OEMs

OEMs with domestic exposure are likely to benefit the most

LIKELY GST RATE CUT: IMPACT ON AUTO COMPONENT COS

Domestic suppliers are likely to see benefits in the form of higher volumes

May enjoy better pricing power in aftermarket

GST RATE CUT & THE IMPACT ON EVs

Negative for EV OEMs, price gap between ICE & EVs could increase

Could push back EV adoption by 2-3 yrs

It can be addressed by giving a demand incentive to EVs