Excise duty hike on SUVs to stay, M&M to overhaul portfolio

ith its last and final hope getting dashed on Tuesday, when in the finance bill the government has decided to stick to the excise duty hike imposed on sports utility vehicles (SUVs) , the country’s largest utility vehicle player Mahindra and Mahindra  's (M&M) is set to overhaul its existing portfolio to meet the parameters outlined in the budget.
M&M president Pawan Goenka told CNBC-TV18 in an exclusive interview on Tuesday that the company has initiated work to re-define its models. CNBC-TV18’s Ronojoy Banerjee reports.

Heavy industries minister Praful Patel and former finance minister Yashwant Sinha had written to the finance minister, asking him to scrap the SUV tax. But the finance minister stuck to his guns and told the media on Tuesday that 98% of SUVs run on subsidised diesel, and deserve to be taxed higher.

Finance minister P Chidambaram said, “I got the letter from one colleague but I have explained to him why it is necessary to increase the excise duty on SUVs from 27 percent to 30 percent. It is a very small increase, as 98 percent of sports utility vehicles (SUVs) run on diesel, which is subsidised. So, by increasing the duty from 27 percent to 30 percent, we are only partially recovering the diesel from the rich people who use SUVs.”

M&M will now have to redefine its product portfolio following the three parameters for SUVs that the finance minister had announced in the Budget. Vehicles above 4 metres or above a ground clearance of about a 170 millimetres and having an engine capacity of 1.5 litres would be subject to the excise duty hike. 

Now based on this, about nine mass-selling volume SUVs fall in this category, of which at least four of them are M&M products. The only SUV that has escaped from this is the Quanto.

Also, M&M is facing a lot of competition in the utility vehicle (UV) segment. In fact, last year the company’s market share in the UV segment dipped by almost 5-5.5 percent because Maruti has come out with the Ertiga. Ertiga had escaped this additional duty burden.

Work on this has already started in the M&M plant. Also interestingly, Goenka said that the overall outflow owing to this 3 percentage hike in excise duty on SUVs could be as much as Rs 1000 crore.