Business Standard Downgrades Auto Sector ON 7th DEC, page 6

With state governments offering tax sops on investments, automobile
firms have enjoyed relatively low tax rates over the last few years.
On an average, tax rates for auto companies, which have set up
facilities in tax-free zones, have declined from 28 per cent to 20
per cent.In 2007, the government offered 100 per cent income tax
exemption for five years and 200 per cent weighted average deduction
on research and development (R&D) for investments in Uttarakhand.Other
sops included a 10-year excise duty exemption and an income tax
exemption of 30 per cent after the first five years. However, this tax-
free jamboree will soon end. According to Credit Suisse, with the
benefits in Uttarakhand expiring, while the tax rates for Bajaj Auto
and Tata Motors could rise from FY13, those for Hero MotoCorp and
Ashok Leyland will be affected from FY14. The biggest beneficiary of
the state's liberal tax structure has been Hero MotoCorp, as 33 per
cent of its total production comes from these tax-free zones. For Tata
Motors and Bajaj, the taxfree zones account for 20 per cent of their
total production. No wonder, Hero's tax rate has nearly halved to 17
per cent from 31 per cent in the last five years. While Bajaj Auto's
income tax exemption expires in FY12, that for Hero and Ashok Leyland
ends in FY13. Hence, from 26 per cent in FY12, Bajaj Auto's tax rates
will rise to 29 per cent in FY13. Technically, Hero, too, should have
been
hit with the tax holiday ending, but, given that its research and
development costs are expected to increase substantially, the company
will benefit from the 200 per cent deduction on the same. According to
Ambit Capital, Hero's FY12 net earnings growth would be ahead of the
Ebitda (earnings before interest, taxes, depreciation, and
amortisation) growth, thanks to a step up in R&D expenses and lower
tax rates, as production has increased at its Haridwar plant, which
enjoys tax benefits. However, revenue and earnings growth is expected
to
moderate in FY13. Analysts say Tata Motors would also see tax rates
rise from 17 per cent to 22 per cent, as the company manufactures its
popular Ace model in Uttarakhand.
BY --MALINI BHUPTA ( sources- Business Standard dated 7th dec page no
6)

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