The S&P BSE Sensex on Friday surged over 300 points to reclaim its crucial psychological level of 28,000, while the broader Nifty50 was also heading towards its key 8,650-mark a day after Rajya Sabha cleared the much-delayed Goods and Services Tax (GST) Bill.
The landmark reform is expected to benefit sectors like FMCG (excluding cigarettes and jewelry), autos, cement, light electricals, multiplexes, retail and logistics.
Mr Motilal Oswal, CMD, Motilal Oswal Financial Services said he is very bullish on scrip called India now that the GST will soon become a reality.
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"It is a historic, transformational and a game changing move, now the whole world would like to participate in the Indian growth story. Feeling bullish," said Oswal, adding GST holds the potential to boost economic activity substantially, improve the government's revenue, and help achieve better transmission of prices.
We have compiled ten stocks recommended by brokerages that may get a boost post GST:
- Amara Raja Batteries: Amara Raja is the second largest lead acid storage battery manufacturer in the country. The brokerage believes that the company would benefit from the implementation of the GST as the resultant cost savings accrued due to lower tax expenses will enable the company to compete better and garner market share from unorganised players across markets.
- Bajaj Electricals: BE is among the top 4 players in the consumer durables space across all its product categories (leader in small appliances; number-4 in fans and lighting). The company would benefit post GST as cost savings on account of lower taxes will help it bridge the pricing gap vis-a-vis products of unorganised players and this in turn will lead to market share gains for the company.
- Century Ply: The plywood industry in India is majorly dominated by unorganized players, which command 65-70 per cent of the total market share. The brokerage expects the organised and unorganised players to come on a common floor in terms of tax liabilities, and the latter will no longer enjoy cost benefits on account of tax savings. Given that Century Ply enjoys strong brand recall and a quality product portfolio, consumer preference may shift towards Century.
- HSIL: HSIL derives nearly 50 per cent of its top-line from the Faucets & Sanitaryware business. Over 70% of the domestic Packaging market in India is dominated by unorganised players (with >40,000 smaller market participants). On implementation of the GST, the pricing differential between products of organised and unorganised players will narrow down and companies with strong brand names like HSIL will benefit.
- Maruti Suzuki: For most of the entry-level passenger vehicle models, we expect reduction in incidence of indirect taxes at the consumer level. This could lead to demand expansion, thereby benefitting players like Maruti Suzuki which enjoys more than 80 per cent market share in the entry level passenger vehicle segment.
Motilal Oswal Securities
- Asian Paints: Under GST, the gross effective tax rate for Asian Paints will reduce from 26-28 per cent currently to nearly 18 per cent. We believe that the savings on tax outgo will either be retained and drive margin expansion or partially passed on to the consumer/trade to drive volume growth. There exists a sizable unorganized market (nearly 35 per cent) in the paints industry. The company may also benefit from gradual reduction in competition from unorganized players, with reduction of pricing gap.
- Century Ply: Century Ply currently pays average indirect tax rate of 26.5 per cent (excise of 12 per cent and average VAT of 14.5 per cent) which will partly aid margin expansion and gain from shift of trade from the unorganized (65-70 per cent of market) to the organized segment, given the reduced taxation difference. Considering the brand equity and quality of Century Ply, it should benefit from the shift in consumer preference towards branded products.
- Shoppers Stop: Implementation of GST could result in a two-fold benefit for Shoppers Stop, first, availability of set off of input tax credit tax on rent (likely benefit of 150 bps), and second, single tax regime will bring majority of transactions of unorganized players under the tax net and thereby reduce the price gap in retail prices of various items, spurring organized players' growth.
- V Guard: Organized market on a blended basis accounts for nearly 60 per cent of total addressable market size, which should see further increase due to the shift from unorganized to organized on account of strong brand and distribution of V Guard.
- PVR: PVR will be a beneficiary on account of entertainment tax of 26.9 per cent in FY16 on net box office collection (ticket sales constituted nearly 54 per cent of FY16 revenue), service tax of 15 per cent on advertising revenue ( nearly 11 per cent of FY16 revenue), and (c) blended VAT of 8 per cent on F&B revenue (nearly 25 per cent of FY16 revenue). Service tax of nearly Rs 760m paid on rent, maintenance and other expenses relating to properties was expensed out in FY16, as credit wasn't allowed.