Shares to buy having positive impact of GST
We expect HUL to gain market share with the implementation of GST as business shifts from unorganised to organised segment. HUL will benefit from moving to a moderately lower 18 percent tax slab and its major raw materials- consumer staples falling in the lowest tax labs (0-5 percent).
Further, incremental benefits may arise from the input tax credits. Broad-based portfolio of brands, innovative pipeline, robust distribution network (enhanced focus on direct reach expansion) & government thrust to stimulate the rural economy will help HUL.
Major segments of Dabur, soaps and hair oil falls under lower tax slab of 18 percent compared to the current effective rate of 26-28 percent.
The largest segment honey continues to fall under the exempt category. Dabur can be an indirect beneficiary if GST helps in bringing down the rural inflation as major consumer staples coming under the exempt category which could impetus to the rural demand.
Apprehension over the GST rates has been an overhang on the stock for a while. The final GST rates with a cap on Cess leads to a lower incidence of taxes than the current effective tax rate.
Leadership position in cigarette category, continuous investment behind brand building & innovations in other FMCG business will also drive the business growth.
Transport Corporation of India Ltd (TCI) is one of the largest well-integrated players in the organised logistics industry providing Freight, supply chain, warehousing solutions & shipping services.
It has a fleet of 9000 trucks, 5 ships and 11mn sq ft of warehousing space. TCI will emerge as a Key beneficiary from the implementation of Goods & Services Tax (GST), which is expected to boost third party logistic players (3PL) business.
With the improvement in scale, free movement of goods and lower transit time is expected to bring overall efficiency thereby improvement in margin profile. The Freight and supply chain business is on a path to revival with improvement in domestic macros.
GST rate for steel has finalized at 18 percent as compared to 19.5 percent, additionally, the benefit of lower tax rate of 5 percent on the major inputs used by them like coal and iron ore will benefit the sector.
Maruti Suzuki India Ltd (MSIL) being a leader in the passenger vehicle is likely to benefit from the GST. Until now, tax on the automobiles range between 28-45 percent; however, GST regime brought the taxes down to 18-28 percent. Small cars, which were tax until now between 25-27 percent of the tax bracket, will become slightly costlier as post GST; they will fall under the 28 percent tax bracket.
On the contrary, big cars, which used to fall under higher tax bracket, now are applicable at 28 percent of GST. As we know Maruti having more than 60 percent of the domestic market is aggressively focusing on premium and big cars, are likely to remain benefitted from the tax reduction.
Earlier, our restaurant bill used to have service tax, service charge, and VAT, but from JULY 1st, GST will subsume service tax and VAT. Regardless, of goods and services, the credit of input will be available for adjustment against the output liability.
This will optimize the working capital of restaurants, hence providing the better services. Overall, we can say, GST is likely to bring cheers for both restaurants owners as well as foodies.
Under GST, the restaurant will fall under 18 percent, a drop of almost 22 percent. We believe specialty restaurant is well stand to grab the opportunity.
Following the fact of complex taxation in cement, we know currently cement companies in most states are paying an indirect tax rate in the range of 27 percent to 30 percent depending on the type of cement. For cement, GST rate has been set at 28 percent.
Packaged cement, which comprises of a major portion of cement sales, is actually expected to attract a lower rate than the present due to GST.
Further, GST would also subsume all local and municipal taxes, which are presently levied in addition to excise and VAT and makes the actual tax incidence much higher, should certainly augur well for the cement business, which largely operates on a retail price per bag basis.
Going by above statement, we are overall positive on the cement stocks, particularly on India Cement. The company is fundamentally sound and well placed to grow big in the future on the back of strong demand arising from affordable housing projects and government increasing focus on infrastructure development.
Until now, the price of a movie ticket is based on the entertainment tax levied by state governments. And in states, entertainment tax varies from zero to 100 percent for different states.
But now in GST, movie tickets costing Rs 100 or less will have 18 percent tax while ticket costing Rs 100 or more will have 28 percent of Tax. Going by above entertainment tax reduction, we believe PVR stands well to capture the wide market.
After the implementation of GST, small cinema houses will feel the pinch of falling in 18 percent bracket, so ultimately raising their ticket price. Here, PVR is well prepared to capture the rising opportunity in the multiplexes. Fundamentally, the company has got better financial with the huge opportunity to grow in the future.
GST at 18 percent for adhesive as against existing tax of 23 percent will certainly benefit Pidilite most in terms of margins expansions (if not passed on completely) as adhesives account for over 65 percent of its total revenue.
Lower tax rate on toothpaste (GST at 18 percent) augurs well for Colgate as its current indirect tax rates are ~600bps higher than the GST rate.
Tax on coal under GST regime would be at 5 percent against the prevailing rate of 12 percent, which we believe will benefit to merchant players like JSW Energy.
Merchant power sales account for over 60 percent of its total sales volume. A duty reduction of 7 percent will aid JSW to reduce its overall generation cost by 3 percent.
As milk is exempted from GST, Heritage Foods will be benefitted most considering it drives over 95 percent of revenue from milk and milk products.
The Strong volume growth and market share gains continued with AL’s domestic M&HCV volume growth vs. industry growth. While the recent growth has been driven by replacement demand (replacing over 10 years old diesel vehicles by government order) and infra demand.
Moreover, the management expects improvement in mining/infra sector to be the next drivers for growth. Apart from a revival in M&HCV demand, the management expects exports and defense as the next major growth driver - management targets 33 percent of revenues in the medium-term from the export segment.
According to the management, the hub and spoke model of transport of goods is likely to gain with the implementation of the GST regime and it will boost the sales of vehicles, driven by requirements in the logistics sector.
The company has reported good quarter earning with commendable growth in the majority of the businesses. Major contributors to the growth have been the real estate, consumer, and chemicals businesses.
The management expects in FY18, implementation of GST would provide strong momentum for a much better economic environment and stronger consumer demand. Going forward, through its CREATE strategy, the company would continue to strengthen its position in all its core businesses while fostering an inspiring place to work.
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