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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

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