omc: no mention; hence safe - BMA Capital Management

AUTO
MARKETWEIGHT
Budget Impact
Neutral
Sana I. Bawani
Auto Analyst
26
AUTO: GEARS UNCHANGED
June 7, 2010
While no new policies were announced for the local auto assemblers, import
rules for used cars also remain unchanged. This suggests that the government
neither aims to encourage more imports of cars nor does it intend to let go of its
revenue from the locally assemebled cars. We believe the government has
taken a step in the right direction as automobile is characterized as a luxury
product and relaxation in its imports would have further burdedened the
country’s BoP while a reduction in duties on CKD kits would not necessarily
have been passed on to the customers.
Duties on CKD kits remain unchanged
Contrary to industry expectations, Customs duty at 35% on CKD kits has been
maintained for FY11. It is pertinent to note that CKD kits are imported by all the
4 listed auto assemblers for the manufacture of vehicles in the country. The
imposition of this duty adds to their production costs however it is passed on to
the customers in the shape of higher prices. Increase in demand during the year
has resulted in production going up by 30% YoY to 110,612 units in 10MFY10
against 85,051 units produced in 10MFY09.
Duties on CBUs also remain unchanged
Age limit on import of old CBUs has also been kept unchanged at 3 years,
contrary to importers’ expectations of an increase in the same. An increase in
the age limit of imported used cars would have encouraged greater imports and
burdened the BoP position. At the same time, continuation of this restriction
signals to the continued strength of auto assemblers in the domestic market.
Furthermore, duties on imported CBUs also remain unchanged:
Import Tariffs on CBUs
Company Import Tariff
Upto 800cc 50%
800-1000cc 55%
1000-1500cc 60%
1500-1800cc 75%
Source: Business Recorder, BMA Research
Duty-free import of agricultural tractors
Promotion of agriculture remains to be government’s key objective. For this
reason, it has maintained duty exemption on import of agricultural tractors.
During 10MFY10, tractor sales improved by 40% YoY to 57,749 units as various
tractor schemes aided their offtakes.
Increase in sales tax to increase car prices
Increase in GST from 16% to 17% in the next fiscal year should lead to an
increase in car prices from Jul 01, 10. Therefore, we expect May10 and Jun10
offtake numbers to be on the higher side; during 10MFY10 auto sales have
increased by 37% YoY to 110,752 units with INDU leading the pack with 50%
YoY growth in sales to 40,062 units.