GST Rate Cut Likely: Maruti Suzuki, Hero Moto, Ashok Leyand shares rally up to 8%

India's automobile companies, two-wheeler manufacturers like Bajaj Auto Ltd. Hero MotoCorp Ltd., Eicher Motors Ltd. and four-wheeler manufacturers like Maruti Suzuki India Ltd., Tata Motors Ltd., Mahindra & Mahindra Ltd have rallied on Monday, August 18, in anticipation of rationalisation of the GST rates for this segment.

Sources have told CNBC-TV18 that the centre is likely to have proposed lowering the GST rate on two-wheelers less than 350 CC and small cars to 18% from 28% earlier.

The centre is also likely to have proposed two categories of rates for cars, instead of current varied rates due to cess on length and ground clearance of cars, according to sources. More details on this story here.

The biggest beneficiaries of such a move within the two-wheelers could be stocks like Hero MotoCorp and Eicher Motors. Hero gets 95% of its domestic sales from vehicles that are currently within the 28% to 31% bracket, while the same for Eicher is 89%.

Stocks like Bajaj Auto and TVS Motor get 52% and 69% of their respective domestic sales from vehicles within the 28% to 31% bracket.

For four-wheelers, small cars currently attract a 28% GST along with a small cess rate between 1% and 3%, while for Hybrid Passenger Vehicles, the rate may be cut to 18% from 28%.

In such a scenario, Maruti, Mahindra & Mahindra, and Ashok Leyland could be potential beneficiaries.

However, within the four-wheeler segment, SUV and Luxury cars could be placed under the 40% SIN Tax bracket, according to sources.

Brokerage firm Morgan Stanley observed that an excise duty cut, rate cut and the sixth pay commission had led to a 20% increase in automobile demand, back in 2008.

It expects Hero and Eicher to be the biggest beneficiaries within the two-wheelers, and Maruti, M&M within the passenger vehicles to be key beneficiaries.

Nomura said that a 10% tax cut could boost demand by 15% to 20%. In case the GST cuts on ICE happens, it will significantly impact EV adoption, according to Nomura, who added that the price gap between EVs and ICEs. It expects M&M, Hero MotoCorp and Ashok Leyland to be the big beneficiaries from such a move.

Shares of Maruti Suzuki have opened with gains of 6% on Monday, while those of HeroMotoCorp and TVS Motor have gained over 4% each.

The Nifty Auto Index has gained 2.5% in the last one month, with stocks like Hero and TVS Motor gaining between 7% and 11%. Stocks like Maruti and M&M have also gained between 4% and 6% during the same period.

(GST Rate Rationalisation Newsbreak By Timsy Jaipuria.)