Excise duty cut on petrol and diesel a positive for logistic sector, says brokerage firm Motilal Oswal

The government's decision to cut excise duty on petrol and diesel prices will have a positive impact on the logistics industry, domestic brokerage firm Motilal Oswal said, a view also taken by Zee Business Managing Editor Anil Singhvi.

He had previously in a Zee Business show had decoded the impact duty cut on different sectors. 

“Logistics activity was a mixed bag in April 2022. While the first half of Apr was weak, demand picked up well during the second half. Daily average e-way bill generations rose 28 per cent Year-on-Year but remained flat month-on-month in April,” Motilal Oswal said in its note. 

In a weak demand scenario, undertaking freight hikes becomes difficult, and therefore, a reduction in diesel costs provides much comfort to the operators, the brokerage pointed out. 
Diesel price forms around 40 per cent of the cost for road logistics operators and the rise in prices in March- April had begun to show its adverse impact on transporters, the brokerage firm said adding that this recent reduction announcement significantly eases the burden on them.

The government on Saturday, May 21, 2022, announced a reduction in excise duty by Rs 8 a litre on petrol and Rs 6 a litre on diesel. Besides, it had also announced Rs 200 subsidy on LPG cylinders. 

It added, “Though the cut in diesel price may not improve the profitability or margins of transporters notably, as diesel costs are a pass-through, this would definitely ease the burden and allow the transporters to maintain their profitability.” 

The near-term profitability of transporters could have been hurt by weak demand and rising diesel prices. However, with the recent diesel price cut announcement, the pressure on profitability would definitely ease, the brokerage mentioned while citing a relief to the logistic sector. 

Stocks such as TCI Express, Blue Dart, Container Corporation, Aegis Logistics, Mahindra Logistics among other logistic companies will have an advantage of this excise duty cut.