Auto:: Budget FY12 - A Preview -Anand Rathi Research

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Autos
We expect a hike in excise duty, of 0-2%, back towards the original
pre-stimulus levels. This would affect all auto companies. We think
this could be slightly offset by the expected increased allocations to
MGNREGA, JNNURM as well as other rural development schemes,
which would further galvanize CV, tractor and two-wheeler demand.
Overall, we expect the impact of the FY12 Budget to be marginally
negative.
Expectations
 The auto sector wish-list includes retaining current excise duty rates on
small cars and two-wheelers. We think this is unlikely and expect a 0-
2% hike in the excise duty.
 Reduce import duties on raw materials for steel and aluminium
components, thus reducing input costs for auto-ancillaries and further
improve OEM margins after the announced price increases.
 Increased allocations under MGNREGA, JNNURM and other rural
development schemes.
 We also expect a greater impetus in the budget to develop the rural
economy and infrastructure.
 More incentives like concessions on finance and higher depreciation
towards greener vehicles.
Impact
 We expect the ~2% hike in excise duty to be negative for all major
auto OEMs as it would entail passing it on to consumers. This could
further raise the cost of owning new vehicles. Companies with plants
in excise-exempt regions like Uttarakhand would be faced with a
smaller impact.
 Bus, truck and tractor demand in FY12 would be further galvanized by
the widely expected increased allocations and impetus to MGNREGA
and JNNURM, resulting in higher per-capita income.
 The sector would benefit on the whole by improved infrastructure,
higher disposable incomes and wider customer base due to the
infrastructure and rural focus.
Companies affected
 If excise duty rates are hiked, the impact would be felt across the auto
sector. Most OEMs with plants in excise-exempt regions like
Uttarakhand would be affected to a lesser extent.
 Further allocation under JNNURM would be positive for CV
companies: Tata Motors, Ashok Leyland and Eicher-Volvo. Higher
allocations under MGNREGA could spur two-wheeler and tractor
demand, notably benefiting Hero Honda, Bajaj Auto, TVS Motors,
Mahindra & Mahindra and other tractor manufacturers.
 Measures to enhance infrastructure development and the rural focus
would be advantageous to the whole sector.
 Accretive benefits to greener vehicles could grow volumes of Maruti
(for its LPG offerings WAGON R, Alto, etc.), M&M (through its stake
in Reva Electric) and Hyundai (Santro and i10).