The hike in cess incidence on SUVs/luxury cars is negative atthe margins for exposed OEMs like M&M. However, the hikehas been lower than what the Street feared and eventuallybrings back pricing to pre-GST levels in effect before July.。    What's New: The Goods and Services Tax (GST) Council has hiked the cess onmid-size cars, luxury cars and SUVs by 2ppt, 5ppt and 7ppt, respectively. Eachof these categories of vehicles currently attracts a GST of 28% and a cess of 15%for a total tax incidence of 43%. Post the hike, the total tax levied on mid sizecars, luxury cars and SUVs will be 45%, 48% and 50% respectively. No changeshave been made to the taxation on small cars (less than 4m in length and enginesize of less than 1200/1500cc for petrol/diesel, respectively) and on electric andhybrid cars. The hike is effective from September 11, 2017.。    Our Views:    Hike in cess was expected by the Street: Post the implementation of GST,prices of large cars and SUVs had come off as the tax incidence had gonedown but the government had indicated that it intends to roll it back andhad hiked the cap on the cess from 15% to 25% thus indicating the cesscould go up by up to 10ppt across segments.。    Cess hiked lower than was being feared: The 10ppt hike in the cess caphad led to fears of a 10ppt hike in cess – the hikes announced are lower(Exhibit 1).。    Impact on M&M – SUV >4metre see 7% duty hike, Hybrids spared: M&M'sSUVs like Scorpio, XUV and old Bolero will see 7ppt tax increase whilehybrid models like Scorpio hybrid will not see any change. Overall usingF1Q18as base we expect that almost 40% of M&M's domestic UV portfoliowill see 7ppt tax hike (~4.9% price hike) thereby negating the bulk of thegains we saw post GST.。    Impact on MSIL: For MSIL, models like Ertiga and S Cross, that formaround 7% of sales, will see 7ppt price hike (~4.9% price hike).。

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