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Thursday, Aug 31, 2006

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Proposed excise cut `breather' for auto cos

Mumbai, Aug. 30

Input cost pressure could impact margins of wiring harness company Motherson Sumi Systems adversely, say analysts. The stock, which has lost ground by 5 per cent over the past week, has remained range-bound for over a month. The counter closed 1.84 per cent weaker at Rs 82.75 on the BSE on Wednesday. Analysts also expect topline growth to slacken, as in the third quarter of the financial year 2007 production disruptions can be expected with its main customer Maruti Udyog, when some of its products are shifted from MUL's old plant in Gurgaon to its upcoming plant in Manesar.

Market rumours of an excise cut being proposed for two-wheelers may just provide a breather to the much-beleaguered Majestic Auto, Scooters India and so on.

The stock of Majestic, which closed weak on Wednesday at Rs 43.50, has seen an 8 per cent gain week-on-week and an 15 per cent gain month-on-month. Scooters India on its part ended up at Rs 24.95 on the BSE, gaining 21 per cent month-on-month.

Dealers said talk of a draft auto policy, wherein an excise cut is being proposed has been doing the rounds in the market. While Majestic Auto has been facing stiff competition in this space from TVS, Scooters India (viewed as a divestment candidate in the past) is no longer perceived as a mainstream player.

However, analysts feel the excise cut cannot happen in isolation and for it to be truly effective has to be applied to a range of automobile components. If that were to happen it would benefit four-wheelers significantly, as it would lower costs. Two-wheelers would benefit in terms of a boost in volumes.

Rumours of Maruti Udyog Ltd looking to set up an SEZ saw the counter witness sustained buying interest on the bourses. Maruti is to supply around 100,000 vehicles per annum to Nissan from 2009 under a global arrangement with Suzuki and Nissan. While there is talk that to fulfill this the company is likely to further ramp up its capacity at Manesar, sources maintain that the company may well put that unit in an SEZ to avail themselves all the incentives. The counter of MUL ended at Rs 862.75 on the BSE. The stock has gained 12.28 per cent month-on-month.


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