MHCV revival in demand to be delayed as govt leaves out truck transporters out of GST registration

Key highlights:

• Government leaves out truck transporters out of the GST registration
• MHCV demand to be delayed till the festive period
• GST could lead to warehouse consolidation, which can drive the demand for LCVs

With the government leaving out truck transporters out of the goods and service tax (GST) registration would lead to delays in transport industry consolidation. This will see recovery in the medium and heavy commercial vehicle (MHCV) demand to be delayed till the festive period starting October 2017.

According to transport industry expert Girish Mirchandani in a CIMB Securities report said that the GST registration relief to delay transport industry consolidation.

A government of India notification on 19 June provided GST registration relief to transporters, who carry goods of GST registered customers. The recipient of goods will be liable to pay a 5% tax on transport cost on reverse charge mechanism (RCM).

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The expert Mirchandani said that the GST registration relaxation was a surprise and means business as usual for small and medium size transporters. This will delay the expected consolidation in the transport sector (65% operate 1-5 trucks), as GST was likely to raise the compliance costs making it harder for smaller players to survive.

While too many variables have led to the delays in truck purchases in recent months, such as GST structure, BS IV pricing, technology change, freight availability post GST, etc, Mirchandani expects MHCV demand to be delayed till the festive season.

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“He expects the MHCV demand recovery to be delayed to the festive period starting October 2017, leading to continued downtrend in H1 FY18. We advise investors to wait for the MHCV downtrend to play out on the companies’ financials, and avoid MHCV makers rather than making guesses on the demand recovery timeline,” said the report.

However, GST could lead to warehouse consolidation, which can drive the demand for LCVs.

If further said that multimodal transporters (combination of road-rail-air-waterways) will be charged 18% GST under forward credit mechanism, wherein input credit for taxes paid is available.

E-way bill implementation is postponed by one month to 31 Jul 2017. Transporters will need to inform the GST registration numbers of all their clients and their vehicle number to the central server before starting the journey.

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Under the RCM (Reverse Charge Mechanism) regime (no input credit), Mirchandani expects the transporters’ purchasing pattern to remain intact – battery, oil, etc from small unorganised sector.

With GST at centre stage, he feels the rest of the CV sector reforms – body building code, scrappage policy, safety norms – will be pushed back to 2018 or beyond, said the report.