Nomura sees four auto companies to be affected most by duty drawback

MUMBAI: The government recently increased duty drawback rates -- refund of duties on imported inputs for export items -- on most of the products eligible for the incentive scheme for 2012-13.

As per the notification, duty drawback rates on motorcycles, 3-wheelers and MHCVs have been reduced to 2 per cent from 5.5 per cent. In LCVs, duty drawback rates have been reduced to 2 per cent from 4 per cent earlier. Rates have been largely kept unchanged for the cars at 3 per cent.

“Within our coverage universe, Bajaj Auto, Ashok Leyland, TVS and Bharat Forge will be most affected by this cut in duty drawback rates. The impact on FY14F EPS of these companies will be between 2-10 per cent. Our calculation assumes that there is no change in pricing. Given current macro economic conditions, companies will find it difficult to take the price hikes, in our view,” said Nomura note on the notification.

According to the brokerage, the impact on FY14F EPS of TVS will be 10 per cent, for Ashok Leyland 7 per cent, Bajaj Auto’s EPS will be affected by 6 per cent, Bharat Forge’s EPS is likely to be hit by 2 per cent and M&M may take a hit of 0.5 per cent.

At 10:05 a.m.; the BSE Auto Index was up 0.49 per cent against 0.66 per cent rise on the Sensex.

Bajaj Auto was down 1.27 per cent, Ashok Leyland declined 0.21 per cent, TCS was 1.01 per cnet lower and Bharat Forge gained 0.76 per cent.