GST impact: top 10 stocks that stand to gain
The GST will replace at least 17 state and federal levies, making the movement of goods faster and cheaper for 1.3 billion consumers
Mumbai: The bill on the much-awaited Goods and Services Tax or GST has been cleared by the Rajya Sabha, and is now closer to reality than ever. It has been dubbed as the biggest tax reform in independent India. GST intends to dismantle inter-state barriers to trade in goods and services, and would be far simpler than the current system, where a good is taxed multiple times at different rates.
The GST will replace at least 17 state and federal levies, making the movement of goods faster and cheaper across a market holding 1.3 billion consumers.
Here is a closer look at 10 of the top stocks that stand to gain from GST, according to analysts, from Motilal Oswal Financial Services Ltd and Edelweiss Financial Services Ltd.
Maruti Suzuki India Ltd
Implementation of GST will be a significant cost saver for the automobile industry. The transportation time and the overall cost for inter-state transfer the goods will come down by surpassing various octroi and check points. Also, the cost for the logistics and supply chain inventory will be decreased by almost 30%-40%. This is expected to drive overall demand and reduce cost for the end user in the range of 8%-10%.
Maruti currently trades at 21.22 times fiscal year 2018 price-to-earnings (P/E), according to Bloomberg estimates and is the second-most expensive auto stock among top 20 auto stocks in the world. Its shares had touched a record high of ₹ 5,037.90 on Tuesday.
The country’s top carmaker’s June quarter profit rose 23%, as it benefited from lower material costs and a surge in income from activities other than its core business operations.
Hero MotoCorp Ltd
GST will bring in around 8% reduction in on-road prices for entry level and executive segment for India’s largest two-wheeler maker. This would eventually widen the target market for this price-sensitive segment as affordability for the end user would increase.
The company is scheduled to announce its quarterly earnings on 8 August.
Asian Paints Ltd
Operational profitability could be boosted by 200-300 basis points for the paint maker, on the back of savings from warehouse rationalisation, lower carrying costs for inventory and reduction in overall tax rates. Overall tax incidence likely to come down if GST rate is fixed at 18%.
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Asian Paints’ June quarter consolidated net profit rose 18.46% to ₹ 552.56 crore, driving the stock to a record high of ₹ 1,152.65 on 28 July. It currently trades at 51.57 times one-year forward P/E, as per Bloomberg estimates.
ACC Ltd
Reduction of effective rates and supply chain costs will bring tangible benefits to the cement sector at large. Overall tax incidence for the sector is likely to come down if GST rate is fixed at 18% and overall realisations will substantially improve post GST roll-out.
Cement maker reported a 79% growth in consolidated net profit at ₹ .239.12 crore for the quarter ended June, but reported a 1.3% decline in cement sales due to muted demand in some markets. It currently trades at 34.25 times 10-year forward P/E, according to Bloomberg estimates.
Gati Ltd
Its express logistics segment will witness higher volume growth. GST implementation will lead to lower transit time and thereby generate higher truck utilisation. It will facilitate seamless inter-state flow of goods, which is expected to directly accelerate demand for logistics services.
Logistics maker Gati is set to announce its June quarter earnings on Thursday, and as per Bloomberg estimates, it currently trades at 19.50 times one-year forward P/E.
PVR Ltd
It is expected GST tax rate will trickle down to 18%-20%, from the current effective tax rate of 22%-24%. Reduction in taxes will lead to an increase in average ticket price (ATP) and higher revenue for the multiplex operator.
PVR reported a decline of 1.60% in consolidated net profit in the June quarter, to ₹ 42.81 crore. It currently trades at 37.14 times one-year forward P/E, according to Bloomberg estimates.
Shoppers Stop Ltd
There could be a two-fold benefit for the retailer Shoppers Stop. There will be an availability of set off of input tax credit tax on rent. Also, single tax regime will bring majority of transactions of unorganized players under the tax net and thereby reduce the price gap in retail prices of various items, accelerating growth for organized players.
Shoppers Stop reported that its low narrowed to ₹ 13.56 crore in the June quarter from ₹ 21.64 crore for the same period of the previous fiscal. According to Bloomberg estimates, Shoppers Stop trades at 86.76 times one-year forward earnings.
Havells India Ltd
For Havells, the lowering of tax rates, at consumer level, from 26%-29% to 18% might lead to a combination of volume increase and margin expansion. There will also be an increase in addressable market size, as most of the product segments such as fans, lighting, water heaters, and air coolers, in which the company operates has large unorganized markets, which will come under the tax net post GST and provide level playing field for all players.
The electrical goods maker reported a 36.27% increase in stand-alone net profit at ₹ 145.58 crore for the quarter ended June. According to Bloomberg estimates, it currently trades at 38.26 times one-year forward earnings.
Crompton Greaves Consumer Electricals Ltd (CGCEL)
The shift from the unorganized to the organized sector post GST, would end up benefitting the company. Fans which make up 45% of sales for CGCEL has 25% of sales from the unorganized sector, while lighting, which is the second-largest category (30% of company’s sales), has 40% sales from the unorganized sector.
CGCEL is the demerged arm of Crompton Greaves Ltd. and the demerger was approved in March. The company’s net profit jumped 38.03% to ₹ 91.94 crore, from the preceding March quarter. Its shares currently trade at 43.34 times one-year forward earnings, as per Bloomberg estimates.
Dish TV India Ltd
There would be a reduction in current effective indirect taxes from around 23%-24%, to around 1820%, part of which the company will be able to retain, and there would be higher availability of input credits on set top boxes.
Dish TV reported a 24.6% drop in consolidated net profit at ₹ 40.87 crore for the June quarter. It is trading at 36.93 times one-year forward earnings, based on Bloomberg estimates.
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