India Inc. is already feeling the heat of goods & services tax (GST) which will come into effect on July 1. The countdown has already started for the ‘One Nation One Tax’ reform to transition on the midnight of June 30 to July 1.
After the launch of GST, the next big trigger which will be tracked by market participants will be June quarter results from India Inc. which most experts think could be muted especially for FMCG and auto stocks amid implementation of GST.
The GST Council had last month fixed the rates for over 1,200 goods and 500 services -- at the slabs of 5, 12, 18 and 28 per cent.
“GST rates have come out and we expect automobiles, FMCG and Building material products like Laminates manufacturers are set to gain in long run,” A.K.Prabhakar, Head -Research at IDBI Capital told Moneycontrol.
“However, due to lower tax rate we expect these companies are expected to see a negative impact on earnings as no tax benefits on its existing inventories which may dent its earnings in the current quarter,” he said.
Prabhakar further added that companies like Maruti, Bajaj Auto, Hero Moto Corp, Colgate-Palmolive and Greenlam may face a tough time in near term but expect to have a positive impact on the long run.
Even though GST will be a disrupter in the short term because of lack of clarity about the procedure, but experts think that any disruptions could be an opportunity to get into quality stocks.
Speaking at a Press Conference, Finance Minister Arun Jaitley said that over the medium and the long term, GST will usher in a more efficient system as it will “check evasion, revenues will grow and the spending capacity of governments will increase.
To further ease the procedure, the GST Council on Sunday extended the deadline for filing the first set of returns, a move that will likely soothe frayed nerves of millions of traders ahead of the new indirect tax system’s rollout from July 1.
“GST implementation will provide a fresh entry point into the market as there will lot of chaos after the implementation. Some sectors like real estate where there is no clarity on the actual impact of GST will see a slowdown in activity,” Naveen Kulkarni, Co-Head Research at PhillipCapital India Pvt. Ltd told Moneycontrol.
We have collated a list of companies which could report muted Q1 amid implementation of GST:
Analyst: D K Aggarwal, Chairman, and MD, SMC Investments and Advisors Ltd
During Q4, it has reported weak financials due to gross margin pressure and lack of volume. According to the management of the company, GST could be short term hurdle but performance would improve in half year FY2018.
It has reported weak financials due to demonization and increase in cotton prices and after GST, man-made apparel above Rs 1,000 will attract a 12 percent levy, higher than the existing 7 percent, which would clearly impact the profitability of the company.
Analyst: Abnish Kumar Sudhanshu, Director & Research Head, Amarapali Aadya Trading & Investments
As per the GST, prices of televisions, refrigerators and air-conditioners are likely to go up by 4-5 percent from July as GST counsel has proposed 28 percent GST on consumer electronics and durables as compared to the current tax rate which is around 23 percent.
Currently, most of the companies are clearing their inventories at the low prices, taking the pressure on their margins and realisations. Hence, we expect Voltas to feel the pinch in the June quarter.
Earlier pre-GST rates for Hotel were ranging from 18 percent to 25 percent, but in the GST panel has decided to classify rates into four buckets based on tariff bands and taxed at 5 percent, 12 percent, 18 percent and 28 percent.
As we know, premium and luxury hotels, where room tariffs exceed Rs 5,000 per day would now be slapped with a 28 percent GST. Hence, Indian Hotel being the largest Hotel chain in India is likely to be impacted in the June quarter.
GST Panel has decided to put GST rates on cable on the higher side than expected i.e. 28 percent from the earlier 18 percent. And the company does not have any plans to pass on the rate hike to mitigate the price increase.
Hence, we expect sales growth would come at the cost of margin, so the company could witness some pressure in the month of June quarter results.
Though, company’s stock price has rallied significantly on the back of lower tax of 3 percent as against the expectation of 5 percent tax in GST. But, the panel has also put the taxes on making charges, which were earlier not there present in the making.
Currently, gold jewellers pay one per cent excise and 1.2 percent value-added tax (VAT) over and above the 10 percent customs duty on bullion, which effectively works out to 12.43 percent.
However, after the introduction of GST at 3 percent for gold and 18 percent for making charges, and keeping customs at 10 percent, the effective rate comes to 15.67 percent.
So, the effective price escalation on gold jewellery comes to 3.24 percent. Hence, we believe the initially, company to bear the margin pressure which could be reflected in the June quarter results.
This has recently acquired male grooming brand Beardo that sells hair and face care products including waxes and creams, which will also be taxed at 28 percent in GST. Hence, we believe the company to reported muted earnings in the coming quarters.
Analyst: Naveen Kulkarni, Co-Head Research at PhillipCapital India Pvt. Ltd.
Kajaria Ceramics, V-Guard, and Finolex:
Post GST implementation many sectors will provide opportunities to build fresh positions as the impact will only be transitory. Stocks which will get impacted include companies because of de-stocking and discounts offered include names like Kajaria Ceramics, V-Guard, and Finolex.
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