Auto stocks rally on GST 2.0; Emkay sees M&M, Maruti as top beneficiaries

Auto stocks surged after the GST Council slashed tax rates across the automobile sector. Analysts at Emkay Global pick M&M, Maruti Suzuki, Hero MotoCorp as top auto stocks to buy

Auto stocks after GST cut: Analysts see auto and auto ancillary stocks revving up on Dalal Street after the Goods and Services Tax (GST) Council, on September 3, slashed tax rates across the automobile industry.

 

According to domestic brokerage firm, Emkay Global, the GST Council’s “landmark” decision to rationalise the four-slab GST regime to two-slab (5 per cent and 18 per cent), while doing away with cess for autos would act as demand tailwind for the automobile sector.

 

The brokerage noted that the GST reform will reduce tax burden across auto segments. Besides, it will address industry worries around the inverted duty structure as all auto components will, now, be uniformly taxed at 18 per cent vs 18-28 per cent earlier.

 

 

The GST Council also maintained the taxation on electric vehicles (EVs) at 5 per cent which, it said, would act as an added tailwind for the ongoing electrification.

 

“This strategic tax relief in the auto space could potentially offer a 5-10 per cent boost in demand across categories,” Emkay Global noted in its report.

 

On the bourses, the Nifty Auto index was the top gainer on the National Stock Exchange (NSE) today, rising 3.7 per cent intraday. At 9:32 AM, the index was ruling 2.5 per cent higher led by M&M (up 7 per cent), Eicher Motors (3.6 per cent), TVS Motor (1.8 per cent), Tata Motors (1.5 per cent), and Hero MotorCorp (1 per cent).

 

By comparison, the Nifty index was up 0.8 per cent.

 

GST rate cut on autos: What will be new GST rates on small cars, SUVs, two-wheelers?

 

• Small cars: Cars below 4-meter length; petrol variant with engine up to 1,200 cc; diesel variant with engine up to 1,500 cc will now be taxed at 18 per cent GST, down from 28-31 per cent earlier. 
• Large SUVs: SUVs with over 4-meter length will be taxed at 40 per cent compared to 43-50 per cent earlier (included cess). 
• EVs: GST on EVs is unchanged at 5 per cent. 
• Commercial vehicles: The GST on CVs, including trucks, buses, and ambulances has been slashed, from 28 per cent to 18 per cent. 
• Tractors: Tractors and agri-machinery will be taxed at 5 per cent from 12 per cent. 
• Two-wheelers: Under-350 cc two-wheelers will attract 18 per cent GST, down from the earlier 28 per cent, while ‘over 350cc’ 2Ws would be taxed at 40 per cent.

 

Top auto stocks to buy after GST cut: Emkay Global’s stock picks

 

According to Emkay Global, a meaningful reduction in on-road prices of small passenger cars can help revive volume in mass-market PVs, and re-energize demand. Within their coverage, the brokerage believes M&M could be the biggest beneficiary owing to a 10 per cent cut in GST rate across its portfolio.

 

M&M's two-third portfolio will be taxed at 40 per cent rate now vs 50 per cent earlier with cess, whereas balance will be taxed at 18 per cent from 28 per cent earlier.

 

"Maruti Suzuki India and Hyundai Motor India would see similar benefits in the form of a 7-8 per cent blended cut in GST for their respective portfolios (1/3rd portfolio to witness 3-5 per cent reduction while ~10 per cent reduction for balance 2/3rd volumes)," it said.

 

Among two-wheelers, GST revision offers huge benefits, especially for Hero MotoCorp (10 per cent cut for 94 per cent of portfolio volumes), Eicher Motors (Royal Enfield) (10 per cent for 81 per cent of portfolio), TVS Motor Company (10 per cent cut for 70 per cent of portfolio) followed by Bajaj Auto (10 per cent cut for 49 per cent of portfolio; 65 per cent including 3Ws), Emkay said.

 

"Reduction of GST from 28 per cent to 18 per cent across passenger and goods carriers (3-wheelers) can stimulate demand in last-mile mobility and small-load transport segments. Bajaj Auto is set to be a key beneficiary in our auto universe. Separately, Tata Motors could potentially benefit in the CV segment," the brokerage added.

 

Lastly, investors looking to play the agri-theme may look at M&M and Escorts Kubota to bet on GST cut on tractors