GST regime: More gainers than losers

Host of companies from the logistics, cement, automobile, consumer and media sectors stand to benefit
once the Bill goes through and gets implemented
ILLUSTRATION: AJAY MOHANTY

UJJVAL JAUHARI, SHEETAL AGARWAL

& RAM PRASAD SAHU
New Delhi/Mumbai, 9 June

assage of the goods and

services tax (GST) Bill
has been pending for a
long time but the expectations
have now increased on its passage in the next session of
Parliament.
If so, many sectors and
companies will gain, especially those dominated by
unorganised entities. For, the
Bill will shrink differential tax
rates and increase tax compliance.
Given the recent buzz, certain companies in the logistics and realty segments have
already seen some run-up in
their share price. Once passed,
it will lead to more clarity on
date of implementation and
rates applicable. However,
based on the proposal, sectors
that can benefit include automobiles, ancillaries, consumer goods, retailing and
logistics, beside infrastructure
and building material.
Logistics is being looked
on as a major beneficiary
among sectors. Sandeep
Upadhyay, managing director,
Centrum
Infrastructure
Advisory, says all those in
logistics services will be beneficiaries. An indirect impact
might be seen for larger toll
operators. The increased profitability of truckers, etc, will
drive traffic movement.
Among logistics companies, Gati, Allcargo Logistics,
Container Corporation of
India and VRL have seen a
surge in the stock prices and
could see more gains as the
Street turns more bullish.
For cement and building
material majors, even as their
prospects improve, led by the
expected rise in demand after

LOWER FREIGHT COSTS UNDER

GST WILL BENEFIT ALL COMPANIES
Freightmovements
Mileage (km/day)
Running time (days)
Monthly trips
Mileage (km/litre)
SAVINGS
Fuel cost
Financing cost
(including
working capital)

Pre-GST Post-GST
300
400
4.7
3.5
4.0
5.3
3.0
3.5

(%)

13.0
25.0

Maintenance
Office expenses
Toll and road taxes
Total (per trip)

the monsoon, the new tax can

bring
further
respite.
Currently, the companies pay
an effective tax at 24.5 per
cent, including value added
tax (VAT) and excise. Under
the new regime, the GST rate
will be about 18 per cent. For
regions where demand is soft,
this could be passed to customers in the interim.
UltraTech, being a pan-India
entity, is always the top pick of
analysts,
though
other
cement companies will also
benefit.

10.0
25.0
19.8
16.7

SECTORAL IMPACT: WINNERS & LOSERS

Automobile

Positive

Auto ancilliary

Positive

Cement

Positive

Consumer appliances

Positive

Consumer electricals

Neutral

Consumer staples, paints

Positive

Home textiles

Neutral to
Negative

Industrials (Manufacturing) Neutral

Industrials (Power BTG + T&D) Negative
Media - broadcasting
Neutral
Media - distribution
Positive
Metals
Neutral
Pharmaceutical
Positive
Telecoms
Negative
Tobacco products
Uncertain

Source: JM Financial report dated December 7, 2015

The brokerage believes that since there have been no development
on GST since then, these estimates need not be updated

Construction and material players such as ceramics

and paints makers will benefit, too. Leading tile manufacturers like Kajaria Ceramics
and Somany Ceramics, likely
to witness healthy expansion
in their operating margins
amid benign gas prices, will
gain visibly and possible win
market share from unorganised players that currently pay
low taxes.
Asian Paints, Berger,
Havells and Pidilite are all set
to benefit, says an Emkay

Research note. So will all consumer goods majors, helped

by gains on the supply chain
and logistics fronts, as well as
reduction in indirect taxes.
Paint and consumer companies will benefit as the GST
rate is pegged at 18 per cent
versus the current (excise plus
VAT) rate of 22-23 per cent.
Our assessment shows
the consumer durables sector
will be the biggest beneficiary
of GST, potentially saving 30
per cent of logistics costs from
the current seven-eight per

cent of sales, says CRISIL

Research. And, that cost gains
for fast moving consumer
goods (FMCG) and pharmaceutical companies could be
relatively lower at 15-20 per
cent.
"Asian Paints, Berger,
Pidilite, Hindustan Unilever
and Colgate will benefit in the
FMCG pack," says Abneesh
Roy of Edelweiss Securities.
In automobiles, the indirect tax for two-wheelers,
small cars and commercial
vehicles is currently up to 26

per cent; for mid-sized cars

and sports utility vehicles,
this can range from 35 to 45
per cent. While the manufacturers in the first three categories (Maruti, Bajaj Auto,
Hero MotoCorp, TVS Motor,
Ashok Leyland, Tata Motors,
Eicher) will benefit, given the
proposed lower tax rate of 18
per cent, a demerit tax would
mean M&M could see see
rates come down by only five
per cent to about 40 per cent,
say analysts.
The impact for media companies PVR and Inox Leisure
will be mixed. PVR currently
pays entertainment tax of
about 22 per cent and stands
to gain. Inox which pays 18 per
cent entertainment tax and
the new regime will be taxneutral. Thats because the
GST rate proposed is 18 per
cent. Analysts at IDFC
Securities estimate the margins of multiplex companies
can improve by 100-200 basis
points under GST.
The combined tax rate of
cable companies such as
Hathway and Den Cable is 25
per cent currently; for directto-home television players
such as Dish TV, it is about 23
per cent. A lower GST rate will
thus be a positive for these.
For telecom companies,
the current service tax rate of
15 per cent on telecom bills
will inch up to the standard
GST rates, marginally raising
cost to the consumer, said
Kotak Institutional Equities
in a June 3 note. The impact
for tobacco companies is
uncertain, as there are no
clear indications on the GST
rate. A higher rate would certainly impact volumes,
already been under pressure
due to the sharp increase in
central and state taxes over
recent years.