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Maruti Suzuki, M&M To Benefit Most From GST: Report

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The Goods and Services Tax or GST Bill is back in news, with the government aiming to push the long-awaited legislation in monsoon session of Parliament. The possibility of the GST coming into effect from next year has led investors to hunt for stocks that will benefit the most from the key tax reform.

The auto space is likely to be a key beneficiary assuming proposed standard GST rate of 18 per cent, analysts say. According to Kotak Institutional Equities,

1) Overall tax rates on small cars (vehicles less than 4 metre in length and engine size less than 1,200 cc/1,500 cc for petrol/diesel variants), two-wheelers and commercial vehicles will come down to 18 per cent of ex-showroom prices from around 24 per cent currently, leading to 7 per cent reduction in vehicle prices.

2) Assuming 40 per cent GST rate, prices of mid-sized cars and SUVs (vehicles more than 4 metre in length and engine size less than 1,500 cc) will likely increase by 6 per cent as current blended tax rate is 33 per cent of ex-showroom prices.

3) Prices of large cars and SUVs (vehicles with engine size greater than 1,500 cc) will likely remain unchanged given this segment is under 30 per cent excise duty bracket currently.

4) For tractors, 12 per cent will be the likely GST rate, which is largely similar to the overall tax rate under current scenario.

These likely changes will be positive for Maruti Suzuki, India’s biggest carmaker, and utility vehicle manufacturer M&M, the brokerage said.

“We believe that in the passenger vehicle segment, demand could shift towards compact sedans and SUVs due to further pricing advantage over mid-sized and large cars/SUVs,” said Hitesh Goel of Kotak.

According to the brokerage, GST implementation will lead to 5 per cent weighted average price benefit on Maruti’s product portfolio. For M&M, corresponding price benefit on overall portfolio would be lower at 2.6 per cent due to negligible benefit in tractors and large SUV segments, it added.

Maruti Suzuki shares closed 2.5 per cent higher at Rs 4,207, while M&M ended flat at Rs 1,354.60 as compared to 1.25 per cent gain in the broader Sensex

-source:- http://profit.ndtv. com/news/market/article-maruti-suzuki-m-m-to-benefit-most-from-gst-report-1419210

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