Hero MotoCorp, Maruti, Tata Motors: Auto stocks rally up to 9% on GST 2.0; analyst views

Automobile stocks such as Hero MotoCorp, Maruti Suzuki India, TVS Motor, Bajaj Auto and Ashok Leyland gained up to 9 per cent in Monday's trade, as the GST rate on hopes the forthcoming GST reforms, likely by Diwali, may bring down the GST rate on automobiles to 18 per cent from 28 per cent at present.   

Hero MotoCorp surged 8.67 per cent to Rs 5,114.45. Maruti Suzuki India climbed and was Sensex's top gainer. The largest car maker in India was up 6.06 per cent at 13,703.20 apiece. TVS Motor, Bajaj Auto, Ashok Leyland and Hyundai Motor India gained 4-5 per cent each.    

"A common rate of tax for small cars and SUVs may hand a significant advantage to SUVs, but electric vehicles, currently at 5 per cent GST rate, may see a meaningful impact on demand as the price gap with ICE will likely increase sharply, Nomura India said in a note.

The foreign brokerage said tax cut across the board to the 18 per cent bracket would boost demand. If there is a common rate for small cars and SUVs, then SUVs are likely to gain further share, it said. 

"This may also accelerate car penetration in India which has been rising very slowly and currently estimated at ~32/1,000 people. We estimate the volume boost could be 15-20 poer cent. It remains to be seen if the
government would take to such a large loss of revenues as tax collections recently have been slow," Nomura said.

The foreign brokerage noted that cars could be placed in a slab to end disputes arising due to classification by engine size and length. If the GST rate is lowered for the auto sector by 10 per cent, it could boost demand by 15-20 per cent, Nomura estimated.

OEMs with higher domestic exposure such as M&M, HMCL and Ashok Leyland would benefit the most, Nomura India said. Among auto stocks, Emkay Global prefers Maruti Suzuki and Hero MotoCorp. MOFSL sees Maruti Suzuki India, Tata Motors and Ashok Leyland as key beneficiaries of a likely reduction in GST rate from 28 per cent to 18 per cent. 

TVS Motors, Hero, Eicher, M&M and Maruti are likely to respond positively to the news development, VK Vijayakumar, Chief Investment Strategist at Geojit Investments said.

"The best way to play GST 2.0 would be through companies addressing mass-segment brands in each category –we pick Hero Motocorp, Maruti Suzuki India, Voltas, and Ultratech Ceemnt as key stocks; Bikaji is a small-cap idea. The benefits accrue to a narrow segment of the market (9.5 per cent of Nifty) with a negligible (below 1 per cent) direct EPS impact for the Nifty. We estimate 10-15 per cent EPS revisions for the companies in the relevant sectors," Emkay said