The decision to stick to the excise duty hike imposed on sports utility vehicles (SUVs) has clearly come as a big disappointment, says Pawan Goenka, president of the automotive and the farm sector businesses of Mahindra & Mahindra
P Chidambaram’s finance bill hit a hard knock on India’s auto industry. The finance bill for 2013-14, which was finally passed in Lok Sabha on Tuesday, stuck to the decision of the excise duty hike imposed on sports utility vehicles (SUVs) despite protests from the industry.
Echoing his disappointment, Pawan Goenka, president of the automotive and the farm sector businesses of Mahindra & Mahindra , says that there is no rationale why SUVs should be taxed 3 percent more.
Talking to CNBC-TV18, he says if the reason being given is that these vehicles run on diesel, lets take the bull by the horns and tax diesel vehicles.
Here is the edited transcript of his interview with CNBC-TV18
Q: Your company and several other auto companies were waiting for some sort of a clarification from the finance minister on this, but there is no such luck, clearly your powers of persuasion have failed. There has been no clarification on the excise duty or classification on SUVs?
A: We are very disappointed that nothing was modified in the finance bill that was tabled on Tuesday in the parliament. We thought that we have done enough talking to the ministry officials.
The minister of heavy industries has written, and so have the chairman of the finance committee and Society of Indian Automobile Manufacturers (SIAM). We had talked and we thought that something will happen, some reconsideration, but it was very disappointing that nothing did happen.
What baffles us is that we cannot see any solid reason that has come out so far including any statements made up to now on what is the rationale for why SUVs should be taxed 3 percent more. It is said sometimes that it is because they run on diesel and if that is the case lets take the bull by the horn and tax diesel vehicles, why SUVs, I don’t understand that at all.
Q: All those hopes are dashed now. You will have to live with this SUV tax so what is plan B? What could Mahindra and Mahindra (M&M) do to try and offset the implications of this higher tax? Are you looking at modifications of your product portfolio, will that make sense for you? Are you trying now to re-position yourself out of the SUV specialist position that you have taken on for so many years?
A: There are three definitions that have been given or three requirements that a vehicle has to meet to qualify, if I could use the word, for the extra 3 percent duty. One is the sub 4 metre length which obviously cannot be done overnight. Only one of our vehicles that is Quanto, is sub 4-metre in length.
The second is under 1.5 litre engine capacity, so again, Quanto is less than 1.5 litre and we could potentially look at other vehicles also coming with under 1.5 litre engine capacity, that is the second definition. Third one is ground clearance of 170 millimetre (mm) and we could look to see whether it is possible for us to redefine our vehicles to have lower than 170 mm ground clearance.
M&M stock price
On August 22, 2014, Mahindra and Mahindra closed at Rs 1388.15, up Rs 12.00, or 0.87 percent. The 52-week high of the share was Rs 1395.90 and the 52-week low was Rs 741.50.
The company's trailing 12-month (TTM) EPS was at Rs 60.11 per share as per the quarter ended June 2014. The stock's price-to-earnings (P/E) ratio was 23.09. The latest book value of the company is Rs 272.84 per share. At current value, the price-to-book value of the company is 5.09.
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