Axis Securities: Impact Of Change In MEIS Scheme On Bajaj Auto
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Axis Securities Report
The government on September 01, 2020 capped the benefits under the Merchandise Export from India Scheme (MEIS) at Rs 2 crore per exporter on exports made between September 01 to December 31, 2020 without changing the coverage of the scheme and the applicable rates.
Also, any Import Export Code (IEC) holder who has not made any exports for a period of one year preceding September 01, 2020 or any new IECs obtained on or after the date of publication of the said notification would not be eligible for submitting any claim under this scheme, and the ceiling would be subject to a downward revision to ensure that the total claim does not exceed the allocated Rs 5,000 crores for the period.
Under MEIS, the government provides duty benefits depending on product and country. Rewards under the scheme are payable as percentage of realized free-on-board value (of 2%, 3% and 5%) and MEIS duty credit scrip can be transferred or used for payment of a number of duties including the basic customs duty.
In addition, it has been notified by the Director General of Foreign Trade (DGFT) that MEIS scheme is withdrawn with effect from January 01, 2021.
Bajaj Auto derives approximately 40-42% of its net sales from exports.
The Company enjoys around 2% of exports incentives under the MEIS scheme which translates roughly to approximately Rs 240 crore annually as we have estimated Company’s total exports at approximately Rs 12 thousand crore.
In our opinion, the changes in the scheme would result in a direct loss of approximately Rs 80 crore to the Company for the period September to December 2020 (approximately Rs 20 crore per month).
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