Bajaj Auto, country’s largest two wheeler and three wheeler exporter is going to be hit by the duty rise in Sri Lanka. Sri Lanka has raised the import duty on petrol powered three wheeler from 51% to 100% and diesel powered three wheelers from 61% to 100% effective from 1st April 2012. This could impact a lot Bajaj Auto since Sri Lanaka accounts for around 10% of Bajaj’s sales and about 12 -13% of EBITDA (Earnings Before Interest Tax Depreciation and amortization).
The Sri Lankan Treasury said the decision was taken in view of the increasing number of vehicles populating the island’s roads since 2009. Vehicle imports have gone up significantly from the year 2009. Expenditure on petroleum imports increased by 18.9 per cent to USD 484 million in January 2012, over the same month last year, the Central Bank said. The expenditure on imports increased by 20.1% to USD 1,883 million in January 2012.
Bajaj Auto is in process of deciding the strategy of pricing its three wheelers. However, it is most likely that the company will pass on the price hike to end customer which will hurt the demand and sales. Sri Lanka is a market where Bajaj Auto Rickshaws used for personal use as a car. It is the only reason why Bajaj Auto wants to launch RE60 (A four wheeler auto rickshaw) in the Sri Lankan market before launching in India. Bajaj Auto has exported 14,72,133 units for the period of April 2011 to February 2012 up 30% from 11,33,834 units. It is to be seen how Bajaj Auto will cope with the new duty structure since it’s very bullish in its export market.