Finance Minister Arun Jaitley said the revenue loss will be made up in the long run. In the Interim Budget, his former counterpart P Chidambaram had slashed the excise duty on automobiles, mobile phones, electronic items, capital goods and soaps for a period ending June 30.
Finance Minister Arun Jaitley on Wednesday afternoon announced the decision to continue with low excise duty for six months till December 31 for auto, consumer durables and capital goods sector. The declaration spiked auto shares in the last 10 minutes of trade with Maruti and Bajaj Auto closing the day with near 3 percent gains.
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Addressing the press, Jaitley said the revenue loss will be made up in the long run. "Revenue loss is a small issue compared to the benefit to economy," he said.
In the Interim Budget presented in February, his former counterpart P Chidambaram had slashed the excise duty on automobiles, mobile phones, electronic items, capital goods and soaps for a period ending June 30.
Excise duty on commercial vehicles and two-wheelers was cut to 8 percent from 12 percent and on SUV's it was reduced to 24 percent from 30 percent. The excise duty on large and mid-segment cars was slashed to 24 percent from 27 percent.
This is definitely a good news for the auto industry, said Prayesh Jain of IIFL. "The situation on the ground has not been encouraging yet. We expect the recovery to happen in the second half. So this will definitely help the automakers to bring in a sustain price cut that they had taken in March and will help in boosting sentiments," he said.
V Parthasarthy, CFO, M&M, said the industry was actually looking whether the new FM extends the date or not. "The excise duty cut was expiring on June 30 and the Union Budget is on July 10. We hope that it gets extended in the Budget because then it can provide us the much-needed relief during these tough conditions," he said.
Moreover, this is a good news for consumers as there is no roll back and thus current prices can continue, he added.
Arvind Saxena, President and Managing Director, GM India, in a statement said: "It's a welcome decision and we hope the government will extend it for the full year in the Budget as the sector continues to be sluggish. We also expect the government to announce other measures in the Budget to revive growth."
Meanwhile, the Society of Indian Automobile Manufacturers (SIAM) also welcomed the government's decision to extend lower excise duty and believed it would improve buyer sentiment.
According to SIAM the lower excise duty will help bring sustained recovery for the auto sector and will go a long way in bringing back growth to the industry. It may also bring investments in said SIAM.
Maruti Suzuki stock price
On June 16, 2014, Maruti Suzuki India closed at Rs 2376.90, down Rs 27.1, or 1.13 percent. The 52-week high of the share was Rs 2505.30 and the 52-week low was Rs 1217.00.
The company's trailing 12-month (TTM) EPS was at Rs 92.13 per share as per the quarter ended March 2014. The stock's price-to-earnings (P/E) ratio was 25.8. The latest book value of the company is Rs 707.16 per share. At current value, the price-to-book value of the company is 3.36.
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