With the Budget 2012 around the corner, we reiterate that the proposed tax on diesel vehicles as per the Kirit Parikh Committee Report can have a significant impact on the domestic passenger car industry, possibly warranting total change in growth estimates. Maruti Suzuki has a high exposure to diesel cars (currently about 25% of domestic portfolio, and estimated at 29%+ for FY13), and the diesel tax can substantially impact our FY13 estimates for Maruti.
Proposals of the Kirit Parikh Committee
Additional Excise Duty on Diesel Vehicles at Rs 80,000 per vehicle: According to the Kirit Parikh Committee Report "Report of The Expert Group on A Viable and Sustainable System of Pricing of Petroleum Products" released in February 2010, passenger cars accounted for 15% of total diesel consumption in India in FY09. The report clearly states the argument that the higher excise duty on petrol compared to diesel encourages use of diesel cars, and that there is no need for car owners to enjoy the benefits of subsidized diesel fuel with cost to the national exchequer.
Currently the excise duty on petrol is Rs 14.35 / litre, while it is only Rs 2 / litre on ordinary diesel and Rs 5.75 / litre on branded diesel (a differential range of Rs 8.6 to Rs 12.35 per litre)
The proposal in the report includes an additional tax of Rs 80,000 per diesel vehicle across the board. The Oil Minister Mr Jaipal Reddy recently proposed the imposition of the aforesaid tax to the Finance Ministry for the Budget 2012.
SIAM's stance: The auto industry lobby SIAM has taken a stance that the data in the Parikh report (which was a result of the surveys and data of the PPAC - Petroleum Planning and Analysis Cell) is erroneous, and that diesel consumption by the personal cars and jeeps account for only 1.03% and 0.53% of the total consumption of diesel in India. There has been no resolution of the difference in estimates. Apart from increasing the prices of vehicles, they feel that technological development in diesel engines will also severely be hampered.
Current Dieselization Status of Domestic Car Industry: Sources and estimates show that about 25% of the domestic passenger "cars" (excluding SUV's / MUV's) sold in FY11 were diesel variants, while 75% were in petrol. This ratio is expected to be at 40% diesel and 60% petrol by FY12.
Why is the tax risky for Maruti? A substantial portion of our growth estimates for Maruti in FY13 is attributable to the diesel segment. As per our base case estimates, out of the total growth in "domestic" vehicles sales in FY13 of 14.8%, we expect petrol / others models to grow only by 8.5%, and diesel to grow by almost 34%. This is further substantiated by the current waiting period on Diesel Models like the Swift (100K), Dzire (30K) and the SX4 (2K).
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