10 listed firms that will see greatest impact of FM’s customs duty tweaks

While some importers might have to absorb costs to protect their market share, other indigenous manufacturers should benefit

In her Budget for 2020-21, presented earlier this month, Finance Minister Nirmala Sitharaman proposed to tweak customs duty on several categories of goods. This was done to boost domestic manufacturing and make it more competitive. However, some industries that depend heavily on imported components in the absence of quality domestic produce might see some cost escalation. We look at 10 listed Indian companies that will be most affected by the proposed duty changes, either positively or negatively.

Ujjval Jauhari, Business Standard
25th February

In a move aimed at encouraging domestic manufacturing, Finance Minister Nirmala Sitharaman proposed a number of customs duty changes in her Union Budget for 2020-21, presented earlier this month. Household goods and appliances, electrical appliances, footwear, furniture, stationery items, toys and machinery were some categories of goods that saw an increase in customs duty.

The move broadly aims to boost domestic manufacturing, but some players that procure goods or components from their offshore locations or depend on cheap component imports from China and other destinations will take a hit. Even as companies that do local sourcing of goods stand to benefit, consumers might have to pay more for products and services where India does not have a sound indigenous capability or technological excellence.

Here are 10 listed companies that could see the greatest impact – positive or negative – of the customs duty changes announced in Budget 2020:

Tata Motors: The country’s largest commercial vehicle manufacturer, with a turnover of more than Rs 3 trillion, stands to benefit from customs duty hikes on electric vehicles (EV). The duty on semi-knocked down (SKD) units of buses, trucks and EVs has been proposed to be raised from 15 per cent to 25 per cent. This might also benefit Ashok Leyland, but Tata Motors – being the larger player and having a presence in the passenger vehicle segment, too – would gain more. Customs duty on passenger vehicles (cars, SUVs and vans), along with buses and trucks brought to India in the completely knocked down (CKD) form, has also been proposed to be raised from 10 per cent to 15 per cent. While Tata Motors will see no price impact on its EVs Nexon and Tigor, competitors like Hyundai Kona and MG ZS EV could see a price hike.

Mahindra & Mahindra: Mumbai-based commercial vehicle, automobile, and two-wheeler maker Mahindra & Mahindra will be another key beneficiary of the proposed duty hikes, as it has long been involved in the development of electric vehicles in India. The proposed customs duty increase on EVs – by 5 per cent to 15 per cent across various categories – will make the Mahindra E Veritos more competitive than the Hyundai and MG Hector EVs, which will have to pay higher duties. In the two-wheeler segment, M&M will see little price impact. Other Budget measures focusing on rural income, agriculture and irrigation, meanwhile, would also boost M&M’s tractor and SUV sales.

Voltas: Cooling product major Voltas, the leading manufacturer of room air conditioners, could be hit by the proposed customs duty increase on refrigerator and air conditioner compressors from 10 per cent to 12.5 per cent. The move will raise the input cost for AC manufacturing companies like Voltas and squeeze their profitability if they absorb it; if they pass on the increase to buyers, it might cost them their market share. Voltas, with an estimated turnover of Rs 8,300 crore in 2019-20, will suffer more in the near term as it has launched its white goods in a joint venture with an international major. It is still in the process of setting up its domestic manufacturing capacities.

Havells: Electrical equipment company Havells, with an estimated turnover of over Rs 10,000 crore in FY20, will be affected at many levels by the proposed customs duty tweaks as it has a diversified product range. The increased duty on fans, personal grooming products and other small appliances is good news for the company – it is an indigenous manufacturer of most of these products and this range has been driving its growth. However, it also acquired Lloyd’s range of air conditioners and is still in the process of setting up its own manufacturing facility for components. So, it will feel the pressure of the duty hike on compressors in the near term.

Bata: Custom duty hikes on footwear imports (from 25 per cent to 35 per cent) and footwear parts (from 15 per cent to 20 per cent) are likely to help domestic manufacturing. India remains the tenth-largest importer of footwear globally. Bata, the largest footwear player in India with an anticipated turnover of more than Rs 3,000 crore in FY20, stands to benefit the most as it procures and manufactures most of its goods locally.

La Opala: India’s first and largest manufacturer of crockery made from opal glass, La Opala, which is estimated to have a turnover of close to Rs 3,000 crore in FY20, will be a major beneficiary of customs duty on tableware, kitchenware and clay items being doubled (from 10 per cent 20 per cent). La Opala remains in a sweet spot because 100 per cent of its tableware revenues comes from domestic manufacturing. Also, the move will impact the unorganised market, and smaller brands that import products will be forced to increase their prices.

Dr Lal Pathlabs: The introduction of a 5 per cent health cess on import of medical devices is bad news for healthcare providers in general. So far as hospitals are concerned, 20-30 per cent of their capital expenditure is on imported medical equipment. But since they also have a significant proportion of international patients (10-15 per cent), they can avail of benefits under the export promotion capital goods (EPCG) scheme, under which their custom duties are waived if they meet certain obligations related to foreign exchange generation. Diagnostic and pathology players, on the other hand, will suffer. The impact on the largest of them, Dr Lal Pathlabs, which has more than 200 clinical labs, will be keenly watched.

HT Media: Budget 2020 has proposed to halve the customs duty on newsprint, uncoated paper used in newspapers, and lightweight paper used in magazines, to 5 per cent. This is a positive for print companies like Jagran Prakashan, DB Corp, and HT Media. While the share of imported newsprint use is 30-40 per cent for Jagran and DB Corp, HT Media, which uses 80-90 per cent imported newsprint for its English daily, is expected to be the biggest beneficiary of the move.

Tata Power: A heavy customs duty increase has been proposed on solar cells – from nil to 20 per cent. This would increase the cost of setting up a new solar plant by 8 per cent, and thereby lead to higher tariffs. The move, coupled with a reduction in tax rate, could prove beneficial for domestic players as they would become more competitive. Tata Power, with a sizeable domestic presence, should be the biggest beneficiary.

Indian Oil Corporation: The proposed cut in customs duty on Calcined Petroleum Coke to 7.5 per cent (from 10 per cent earlier) is bad news for Indian Oil’s petcoke sales. Additionally, the removal of anti-dumping duty on Purified Terepthalic Acid could impact the company’s earnings by about 2 per cent.

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