The excise duty cut affects 24%, 13%, and 61% of 2008 sales for Tata Motors, M&M, and
Ashok Leyland, respectively . Because the cut in excise duty is aimed specifically at boosting demand, as in past instances, we expect all OEMs to pass on the benefit to consumers in terms of lower prices, and thus the lower duty should have no impact on their bottom lines. Our channel checks indicate that all concerned OEMs plan to announce price cuts, in line with the excise duty cut, over the next week.
The cut is primarily to align the rate of excise duty for goods carriers with that for passenger carriers – and to spur demand in the segment. Given slowing industrial activity, low freight movement, and the tight financing environment for commercial operators, we do not expect this move to push up demand, and we remain cautious on the Commercial Vehicles sector.