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Category: Global Economy Sub-category: World Economy
Document type: news
Bajaj Auto shares fell 2% after Sri Lanka raised import tariff on petrol and diesel powered three-wheelers. The Indian company is fearful that the sharp hike in import duty by Sri Lanka will lead to a downfall in the sales of India's second largest two-wheeler maker in the island nation.
Sri Lanka has raised its import duty on petrol powered three-wheelers to 100% from 51%. Similarly, duty on diesel powered three-wheelers rose to 100% from 61%, while their electric counterparts have seen almost a two-fold jump to 50% from 27%. This hike came into effect from March 31st mid-night.
As a result, Bajaj Auto which exports three-wheelers into Sri Lanka will now be burdened with a 100% tax as against previous 51% tax. This decision was taken due to the increased number of vehicles that have made their way to Sri Lanka since 2009.
Sri Lanka accounts for around 10% of Bajaj's sales and an estimated 12-13% of its earnings before interest, taxes, depreciation, and amortisation (Ebitda). On an overall basis, Sri Lanka constitutes close to 30% of the company's exports.
According to the analysts, this sharp hike in duty, which Bajaj Auto will most likely pass on, might hurt this demand for three-wheelers.
On the other hand, the company is in talks with partners in Sri Lanka weave its strategy post this duty hike.
Bajaj Auto sells vehicles in Sri Lanka through its local partner David Pieris Motor.
However, studies show that, Bajaj's sales there rose 76% in 2010-11, according to the company's annual report. Furthermore, between April-February, Bajaj Auto's total exports were up 30% from a year ago to 14,72,133 units. It exported 76,558 three-wheelers in October-December, up 35%.
On the other hand, Sri Lanka accounts for about 37% of the three-wheeler exports at 9,000 to 10,000 units per month. This is 9% of the company's revenue and 11% of the operation profit.
However, an interesting fact to pay attention to is that taxes for diesel cars have, at present, increased from 180% to 250% for a car under 1,600 cubic centimetre (cc) and from the current 291% to 350% for a car over 2,500 cc.
Moreover, vans driven on petrol have not been spared either. Taxes on such vehicles have moved up to 125-200% from the current 103-172% depending on the passenger carriage capacity while for diesel vans, these now stand at 125-350%, up from the existing 112-291%.
Hence, any duty structure rejig at this point is bound to take a toll on Indian suppliers as well.
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Bajaj Auto Limited is an Indian motorized vehicle-producing company. Bajaj Auto is a part of Bajaj Group. It's founded by Jamnalal Bajaj at Rajasthan in the 1930s. It is based in Pune, Maharashtra.
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