Global brokerage firm Jefferies has expressed optimism about the Indian automobile sector, highlighting potential growth opportunities driven by expected Goods and Services Tax (GST) cuts. The firm has identified Mahindra & Mahindra (M&M), Maruti Suzuki India, and TVS Motor as its preferred picks in the sector.

Positive Outlook and Earnings Upgrades

Jefferies anticipates that potential GST reductions could significantly boost auto demand, particularly in the two-wheeler and small passenger vehicle segments. This positive outlook has led the brokerage to revise its volume estimates upwards by 2-6% for these categories. Consequently, earnings projections for several major players in the industry have been upgraded:

• TVS Motor: 2-8% earnings upgrade
• Hero MotoCorp: 2-8% earnings upgrade
• Maruti Suzuki: 2-8% earnings upgrade
• Hyundai India: 2-8% earnings upgrade

Top Picks and Growth Projections

Among the companies analyzed, TVS Motor and Mahindra & Mahindra stand out with the highest projected earnings per share (EPS) compound annual growth rate (CAGR) for the period FY2025-2028:

• TVS Motor: 27% EPS CAGR
• Mahindra & Mahindra: 19% EPS CAGR

These impressive growth projections have solidified their positions as top picks in Jefferies' analysis.

Rating Changes and Maintained Positions

In light of the sector's improving outlook, Jefferies has made the following adjustments to its ratings:

• Hero MotoCorp: Upgraded to 'Hold' from 'Underperform'
• Hyundai India: Maintained 'Underperform' rating
• Tata Motors: Maintained 'Underperform' rating

Potential GST Impact Across Vehicle Categories

The brokerage's analysis suggests that GST cuts could have varying impacts across different vehicle segments:

Jefferies estimates that a 7-10% GST rate cut could translate to a 6-8% reduction in on-road vehicle prices, potentially stimulating demand across the sector.

Industry Implications

The anticipated GST cuts are expected to have a significant impact on the automotive industry:

1. Increased affordability: Lower taxes could make vehicles more accessible to a broader range of consumers, potentially driving up sales volumes.

2. Segment-specific growth: Two-wheelers and small passenger vehicles are likely to be the major beneficiaries of these tax cuts, which could lead to a shift in market dynamics.

3. Competitive landscape: Companies well-positioned in the two-wheeler and small passenger vehicle segments may see enhanced growth opportunities.

4. Economic stimulus: The potential boost in auto sales could have positive ripple effects throughout the economy, supporting related industries and potentially contributing to job creation.

As the industry awaits official announcements regarding GST reductions, investors and consumers alike will be keenly watching how these potential changes unfold and impact the automotive market in India.

In a potential game-changer for the Indian automobile sector, a proposed reduction in Goods and Services Tax (GST) rates could lead to significant savings for car buyers. The move is expected to provide relief to the auto industry during a period of slower growth.

Proposed GST Rate Changes

The GST rate for cars is expected to decrease from 28% to 18%, while Sport Utility Vehicles (SUVs) could see rates drop from 45% to 40%. This reduction is part of a broader initiative estimated to move 90% of items from the 28% GST slab to the 18% slab.

Potential Price Reductions

According to a report by Nomura, popular models could see substantial price cuts:

Impact on EMIs

The price reductions would also translate into lower monthly EMI payments for car buyers:

Implications for the Auto Sector

This proposed GST rate cut comes at a crucial time for the automobile industry, which has been experiencing slower growth. The reduction in prices and EMIs could potentially stimulate demand, providing a much-needed boost to the sector.

While the exact implementation date of these proposed changes has not been specified, the automotive industry and potential car buyers are closely watching these developments. If implemented, this GST rate cut could make vehicle ownership more accessible to a broader range of consumers, potentially revitalizing the auto market.