The much-awaited Goods and Services Tax (GST) Bill will now see the light of day and be enforced from April 2017 as the Rajya Sabha has finally passed the GST Constitutional Amendment Act on Wednesday. The passage of the crucial bill is another key trigger which can give impetus to equity markets. Of late, rising optimism over the passage of GST Bill in the ongoing session of Parliament have already helped benchmark indices BSE Sensex and NSE Nifty to spurt over 3 per cent in the past one month. Market analysts say GST is likely to benefit manufacturers due to reduction in indirect taxes and transportation cost. It will also benefit sectors like logistic operators, FMCG (excluding Cigarettes and Jewellery), media and manufacturers like consumer durables etc.
It will have a sea change in transportation of goods in number of days, cost of carrying and octroi duty. GST will also benefit companies with reduction in cost of inventory due to improvement in turnaround and sectors with high unorganised segment due to standardisation in indirect taxes.
Equity analysts have mixed views on the impact of GST passage on equity markets. Jayant Manglik, president, retail distribution, Religare Securities said, “It would not be wrong to say that markets have somewhat priced in the expected clearance of the GST bill and thus favourable outcome might not trigger a strong surge ahead.”
After the passage of GST, Motilal Oswal, CMD,Motilal Oswal Financial Services said, “India is on the way towards double digit growth. Feeling bullish.”
The implementation of the GST would resolve supply chain issues, reduce paperwork and enable efficient trade across the country which would support organised market growth in India. This would contribute towards GDP growth which would be a positive for the economy as a whole and thus the stock market.
Below are 12 stocks which may benefit with the passage of GST:
Recommendations by Geojit BNP Paribas Financial Services:
1) HUL: Implementation of GST will provide high operational benefit to FMCG companies due to consolidation in manufacturing plants and warehousing. Additionally, FMCG have high presence of unorganised sector up to 60 per cent segment wise. Hence listed companies with strong brands are likely to benefit due to rationalisation in indirect taxes and reduction in competition.
2) Maruti Suzuki: Overall tax rates for small cars are likely to come down as per the finalised GST exemption list. Being a leading player in the small car segment (about 50 per cent market share) Maruti would benefit from the passage of GST. Currently the CST paid on inputs are not being set off against VAT liability, under GST it may be addressed.
3) PVR: PVR is a beneficiary of the proposed GST implementation on likely savings in the entertainment tax, which is a major cost for the exhibition business. Average entertainment tax as a percentage of PVR’s gross box office revenue was 21 per cent in FY16. With the implementation of GST, entertainment tax is expected to be rationalised and there would be a uniform entertainment tax across states. Though a partial benefit will be passed over to consumers, any drop in entertainment tax would be margin accretive. Assuming 18 per cent entertainment tax post GST, the brokerage house expects an additional benefit of 170 basis points in FY18E EBITDA margin assuming any impact from increase in VAT on F&B will be passed on.
4) Asian paints: Paint companies will get the benefit from GST bill due to benefit from lower effective tax rate. 35 per cent of the market is controlled by the unorganised players and there is stiff competition in entry level paint like distemper and putty. GST can narrow price difference with unorganised players and increase opportunities for organised players. Asian paint is the market leader in the Indian paint manufacturing industry with a market share of around 53 per cent. Indeed, Asian Paints will get cost benefit on account of lower inventory carrying and logistics cost.
Vaibhav Agrawal, VP and head of research, Angel Broking
1) Transport Corporation of India: The company is well-placed to be a key beneficiary if the GST is implemented as corporates will need a reliable pan-India logistics player to manage their hub-and-spoke supply chains. Given the company’s pan-India scale, which gives it a competitive advantage in higher margin segments of the logistics industry, and its asset-light business model, the company will stand to be a major beneficiary from the passage of the GST.
2) VRL Logistics: VRL provides general parcel and priority parcel delivery (less-than-truckload [LTL] services), courier, and full-truckload (FTL) services through its widespread transportation network in 28 states and 4 union territories. At present, the transit time is severely affected owing to down time at state checkpoints. The GST implementation would result in lesser down times at state checkpoints and result in optimised delivery times.
3) Amara Raja Batteries (ARBL): It is the second largest lead acid storage battery manufacturer in the country. ARBL has been outpacing market leader Exide (ARBL grew at a 24 per cent CAGR over FY2010-15 as compared to Exide’s growth of 13 per cent), leading to its market share improving from 25 per cent in FY2010 to about 35 per cent currently. Angel Broking believes that the company would benefit from the implementation of the GST on back of its strong distribution network across India.
4) Navkar Corporation (NCL): NCL is among the largest and one of the three CFS (Container Freight Stations) at JNPT. Its rail connectivity helps it garner higher market share at the port. NCL is in a massive expansion mode where it is increasing its capacity by 234 per cent to 1,036,889 TEUs at JNPT and is coming up with an ICD (inland container depot) at Vapi (with a logistics park).
Pankaj Sharma, Head of Equities, Equirus Securities
1) Symphony: The brokerage house thinks this will be one of the most important beneficiaries of GST and this is because the air coolers have significant presence of unorganised players and their price competitiveness vis-a-vis Symphony would come down. It will also help in increased geographical presence by making movement of goods more hassle free.
2) Exide: In the replacement market for batteries, there is a sizable presence of locally manufactured products. This unorganised players are also more prevalent in commercial vehicles which as a space would open up more for Exide. Equirus thinks this will be a beneficial for Exide.
3) Britannia: The market for end product in this segment has become largely organised but still, there is a large presence of unorganised players in inputs. Similarly, the procurement of raw materials and movement of end products should benefit from GST.
4) Hero Motocorp: This is an indirect beneficiary of GST. Equirus Securities thinks that with the implementation of GST, the company should become more cost competitive with lot of input products becoming available more and at times, better prices too.