India's top passenger car maker Maruti Suzuki is to hike prices in Maharashtra after the state government announced a 2-4% tax hike on petrol and diesel vehicles.
It’s a double blow for car buyers in Maharashtra as vehicle makers had already hiked prices nationwide after Union Finance Minister Pranab Mukherjee announced a hike in excise duty to 12% from 10% earlier this month.
Maruti Suzuki had already hiked its vehicle prices by up to Rs 17,000 following the 2% hike in excise duty and looks like the higher taxes in Maharashtra too will be passed on to customers in the state.
"Car prices will be immediately increased due to higher taxes," Shashank Srivastava, Maruti's chief general manager – marketing told CNBC-TV18 on Wednesday.
Maruti Suzuki gets 7-8% of its total sales from Mumbai alone.
Srivastava said higher taxes are negative for the auto sector, where sales, especially for passenger cars, have been very sluggish this fiscal.
Despite that, most automakers pass on additional tax increase to customers.
Maruti Suzuki is only expecting a 3% volume growth for the industry for the year ending March 2012. Volume growth in fiscal 2013 is likely to grow at a faster 7-10% rate, still much slower than the 30% growth seen in 2010-11.
Meanwhile, Srivastava expects Maruti's sales in March were looking good, helped by festivals like Gudi Padwa.
Maruti Suzuki's sales rose 5.2% in January and 6.5% in February.
Maruti shares were up 0.5% at Rs 1,279.80 on NSE in morning trade.
Below is the transcript of Srivastava's interview on CNBC-TV18. for more.
Q: Are you passing down these rates hikes in terms of price increases? How much will it be across categories for Maruti cars?
A: This is a decision which Maruti cannot take; you have to pass it on to the consumer. We only determine the ex-showroom price. So the on-road price would immediately carry the extra road tax and registration tax.
Q: Market has been quite sluggish over the last few months. Do you fear that such hikes might crimp demand even more during the course of the year?
A: Yes, the growth for the industry will be flat at 3.5% this year, considering that at the beginning of the year, we had projected about 10-12% growth. The high interest rate, fuel prices etc has led to this situation. I don’t see either fuel prices or interest rates coming down.
Any increase in the price, like we had seen in excise duty, road tax and registration tax hikes across the states will have a negative impact for sure.
Q: Would you rethink on the target of 10-12% or are you holding that for now?
A: No. The 10-12% target I was referring to was for last year. For last fiscal i.e. 2011-2012, which will end by March, the growth rate for the industry would be about 3.5%. As for next year, there seems to be consensus that it would be broadly in the range of about 7-10%.
Q: How big is Maharashtra, as a market, for Maruti?
A: Maharashtra is a market in two types. One is Bombay, which is quite a big market. We do about 7-8% of our sales there and 6-7% of sale is in the rest of Maharashtra. So, Maharashtra constitutes to about 12%-13% of our total sales. So if your sales stand at 100,000, then about 13,000 vehicles would be in Maharashtra. That is a per month figure.
Q: A lot of other states also run a fairly weak fiscal situation. Do you fear that what Maharashtra may have started might get picked up by other states as well?
A: Yes. There are many states where the rates are even higher than what you see today in Maharashtra. In Maharashtra, rates have gone up for petrol vehicles from 7% to 9% and that for diesel has gone from 7% to 11%. But there are states like Karnataka, which for a long time, has been operating in the range of about between 15% and 20% already. In Andhra Pradesh, it is 12 to 14%. It is between 10.5% and 15% in Tamil Nadu.
These rates are already extremely high in many states. I think in the other states, the rates are generally at 7%. There is always this fear that the road tax and registration tax in the states where it is not so high, the tendency would be towards that.
In the past, we have seen what the central government does is sometimes negated by what the state governments do. Especially, suppose there is a decrease in the excise duty, then states who actually correspondingly increase the tax rate, the net tax to the consumer is that there is either no change or there is a change in the other way than what was intended. In this case, there seems to be double whammy. The central government has increased excise duty and the many of the state governments have raised these taxes. I think it will be a negative for the industry definitely.
Q: There has been some talk that Maruti is pushing for lower royalty rates from Suzuki. Can you take us through where discussions stand on that?
A: No. I am not really in the knowledge of those things. So I may not be able to comment on that.
Q: What has been the trend in terms of sales for March? Over the last two months, Maruti has consistently been surprising against estimates in terms of monthly sales.
A: Yes. This quarter has been fairly good and I think March current trend seems to be okay. The fear in the Budget was that there would be an increase in excise duty. This led to a rush for retail.
Also, an increase in the road tax, which is generally applicable from the April led to a little bit of push. Apart from the fact, we have had festivals such as Navratra in the North and Ugadi in the South, Gudi Padwa in the West, which are considered to be extremely auspicious for purchases. So, I would say the last week of March should also be good in terms of retail.
Maruti Suzuki stock price
On November 27, 2015, Maruti Suzuki India closed at Rs 4580.10, down Rs 31.3, or 0.68 percent. The 52-week high of the share was Rs 4789.00 and the 52-week low was Rs 3250.00.
The company's trailing 12-month (TTM) EPS was at Rs 149.13 per share as per the quarter ended September 2015. The stock's price-to-earnings (P/E) ratio was 30.71. The latest book value of the company is Rs 784.70 per share. At current value, the price-to-book value of the company is 5.84.
READ MORE ON Maruti Suzuki, price hike, tax, Maharashtra, passenger cars, Shashank Srivastava, CGM-Marketing
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