GST rationalisation expected to drive first-time two-wheeler buyers: Report

New Delhi, Aug 29 The proposed rationalisation of Goods and Service Tax (GST) Slab before Diwali this year can pull up first-time buyers in the two-wheeler (2Ws) segment, a report said on Friday.

"The imminent GST cut by 10 per cent (from 28 per cent to 18 per cent) can make the 2Ws a lot more affordable and help revive demand, both for first-time buyers and even replacement cycles," HSBC Global Investment Research said in a report.

The Eighth Pay Commission will also provide support from mid-2027, it said.

The 2W industry grew at a 2.3 per cent CAGR over FY15-FY25; now, given higher disposable consumer income, we estimate a 6-8 per cent CAGR over FY25-FY30, the report stated.

Original Equipment Manufacturers (OEMs) with higher exposure to the domestic market may benefit the most.

According to the report, the intra-sub-segment movements to change with the price reductions (e.g., transition from 75-110cc to 110-125cc migration may continue even post the GST revision).

Royal Enfield remains uniquely positioned where uncertainty is still at its peak. However, the government may revise the lower GST criteria from 350cc to 250cc or even 150cc, the report highlighted.

"Even if the prices remain unchanged for RE, the relative positioning of RE may get diluted a bit and may restrict volume growth. And it's materially negative if all bikes above 250cc are moved to 40 per cent GST," the report stated.

The report held out mixed impact for EV OEMs - negative for near term, positive for long term: The possible 7-8 per cent price reduction in ICE vehicles would increase the break-even for EVs, making them less attractive in the near term.

Positively, though, with just two GST slabs of 5 per cent and 18 per cent, it looks unlikely that the government will increase GST on EVs in the foreseeable future, it said.

Also, likely EV demand at the lower end (less than 1 lakh) will be impacted more than the premium segment.

The report estimated TVS and Bajaj Auto to account for higher projected 2W growth in the domestic market post GST cut.

During 2019-2025, the price of 2Ws increased by 25-30 per cent, thereby impacting demand.

"We estimate that replacement sales are currently contributing 70-75 per cent of new sales, compared to the usual run-rate of 40-45 per cent," the report noted.

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