Business

Tractor sales to receive boost after GST revision

Govt reduced tax from 16% to 10% for FY15.

Our Correspondent June 20, 2014

Government appears aware of the need to not tinker too much with the taxation regime for tractors going forward, which is a key medium to long-term positive. PHOTO: FILE

KARACHI: With the reduction in General Sales Tax (GST) back to 10% in budget 2015, tractor industry sales are expected to rebound over the next year, AKD Securities reported on Friday.

The brokerage house predicted that the sales of Millat tractors in fiscal year 2015 might touch 32,000 units while the Al-Ghazi tractors sales may reach 25,000 in 2015.

The government had reduced GST on tractors from 16% to 10% in the federal budget.

Considering the tractor industry recorded sales of just 31,060 units in the first 11 months of fiscal year 2014 (down from highest-ever 71,512 units sales in fiscal year 2010), this GST reduction is expected to provide a significant boost to tractor sales.

With 71,512 units sold in fiscal year 2010, overall tractor sales plummeted to 49,745 units in FY12 and 31,060 units (MTL: 20,060 units; AGTL: 11,000 units) in 11MFY14 – tractor sales are set to post their worst record in the last seven years.

This dip in tractor sales can partly be attributed to a volatile taxation regime over the last five years.

Performance at KSE

The tractor industry was one of the sectors that benefited most out of the budget. The reduction in GST is expected to boost sales in coming months where the listed tractor space has gained 4% since budget announcement, outperforming the KSE-100 Index by 6.8% in the process.

Furthermore, the government appears aware of the need to not tinker too much with the taxation regime for tractors going forward, which is a key medium to long-term positive.

Al-Ghazi tractors (AGTL) have returned 7.2% since budget announcement, with the stock also buoyed by the Sindh government’s recent announcement of a subsidy on 7,000 tractors for the province.

In contrast, Millat tractors’ post-budget gain has been a muted 1.9%. While any announcement of a similar subsidy scheme in Punjab could act as a key catalyst for MTL, AKD Securities believes it is due a catch-up rally in any event. Initial workings suggest the tractor space has more to offer where it sees an 18% upside in MTL and an 11% upside in AGTL over the next one year.

Published in The Express Tribune, June 21^st, 2014.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.