GST cut to boost AC sales; cement impact modest, says CLSA
CLSA suggests that proposed GST reductions will boost demand for air conditioners, with a modest impact on cement. The brokerage underscores the need for companies to pass savings to consumers for optimal demand growth.
- Aug 18, 2025,
- Updated Aug 18, 2025 11:11 AM IST
Foreign brokerage CLSA has indicated that the proposed cuts in the Goods and Services Tax (GST) will favourably affect air conditioner manufacturers, while cement producers are expected to experience a less pronounced impact. CLSA said the potential lowering of the GST rate from 28% to 18% for these sectors could invigorate consumer demand, especially after recent income tax cuts and repo rate decreases.
According to CLSA, the anticipated GST rate reduction could "strongly influence demand for air conditioners, particularly after recent signs of weakness." However, "the impact on cement demand is likely to be more modest, as it represents roughly 10% of overall construction costs." Consequently, air conditioners might witness a significant demand surge, contrasting with the moderate benefits anticipated for cement.
The brokerage emphasised the importance of companies passing on the tax cuts to consumers, stating, "A key factor to monitor will be whether companies pass on these tax cuts to consumers, as this will affect both demand growth and profitability." If businesses do not reduce prices, the expected demand boost may be limited.
CLSA's analysis suggests that air conditioners and cement contribute approximately 3.5% to total GST collections. Furthermore, the impact on cement could be offset by reduced input tax credits, which potentially mitigate the fiscal implications. "CLSA estimated these two categories contribute approximately 3.5% to total GST collections, with part of the impact on cement potentially offset by reduced input tax credits," the brokerage added.
Delving deeper into sector specifics, CLSA noted that "cement accounts for c.10% of construction costs for most housing projects, and hence price elasticity could be muted." This suggests that while a cost reduction might improve sentiment, the overall effect may be limited. In contrast, CLSA highlighted a "strong impact on demand driven by price reductions, particularly in the current weak demand environment" for air conditioners.
The air conditioning industry has faced challenges recently, with CLSA observing that "after two strong years, FY24 and FY25, industry demand has fallen c.25% in 1QFY26 leading to inventory buildup." These proposed GST cuts could thus provide a much-needed stimulus to the sector.
CLSA has also warned that "if there is aggressive price increases in the sectors, ahead of or post-GST cut, the impact on demand could be lower, although it would help boost profitability." Therefore, the actual effect on demand will heavily depend on corporate pricing strategies.
Finally, CLSA estimates the fiscal effect of these tax cuts, noting that "GST collections from cement to be Rs680bn (US$8bn) and air conditioners to be Rs110bn (US$1.2bn), accounting for 3% and 0.5% of FY25 GST collections." A reduction in rates could lead to US$3.3bn lower GST collections for these segments. However, adjustments through lower input tax credits might cushion some of this loss.
Foreign brokerage CLSA has indicated that the proposed cuts in the Goods and Services Tax (GST) will favourably affect air conditioner manufacturers, while cement producers are expected to experience a less pronounced impact. CLSA said the potential lowering of the GST rate from 28% to 18% for these sectors could invigorate consumer demand, especially after recent income tax cuts and repo rate decreases.
According to CLSA, the anticipated GST rate reduction could "strongly influence demand for air conditioners, particularly after recent signs of weakness." However, "the impact on cement demand is likely to be more modest, as it represents roughly 10% of overall construction costs." Consequently, air conditioners might witness a significant demand surge, contrasting with the moderate benefits anticipated for cement.
The brokerage emphasised the importance of companies passing on the tax cuts to consumers, stating, "A key factor to monitor will be whether companies pass on these tax cuts to consumers, as this will affect both demand growth and profitability." If businesses do not reduce prices, the expected demand boost may be limited.
CLSA's analysis suggests that air conditioners and cement contribute approximately 3.5% to total GST collections. Furthermore, the impact on cement could be offset by reduced input tax credits, which potentially mitigate the fiscal implications. "CLSA estimated these two categories contribute approximately 3.5% to total GST collections, with part of the impact on cement potentially offset by reduced input tax credits," the brokerage added.
Delving deeper into sector specifics, CLSA noted that "cement accounts for c.10% of construction costs for most housing projects, and hence price elasticity could be muted." This suggests that while a cost reduction might improve sentiment, the overall effect may be limited. In contrast, CLSA highlighted a "strong impact on demand driven by price reductions, particularly in the current weak demand environment" for air conditioners.
The air conditioning industry has faced challenges recently, with CLSA observing that "after two strong years, FY24 and FY25, industry demand has fallen c.25% in 1QFY26 leading to inventory buildup." These proposed GST cuts could thus provide a much-needed stimulus to the sector.
CLSA has also warned that "if there is aggressive price increases in the sectors, ahead of or post-GST cut, the impact on demand could be lower, although it would help boost profitability." Therefore, the actual effect on demand will heavily depend on corporate pricing strategies.
Finally, CLSA estimates the fiscal effect of these tax cuts, noting that "GST collections from cement to be Rs680bn (US$8bn) and air conditioners to be Rs110bn (US$1.2bn), accounting for 3% and 0.5% of FY25 GST collections." A reduction in rates could lead to US$3.3bn lower GST collections for these segments. However, adjustments through lower input tax credits might cushion some of this loss.