Big push to get GST through; top 10 stocks likely to benefit
NEW DELHI: Prime Minister Narendra Modi on Friday reached out to Congress chairperson Sonia Gandhi and former prime minister Manmohan Singh in an attempt to bring them on a common platform to ensure the passage of the goods & services tax (GST) bill.
The government plans to roll out GST from April 1, 2016, which could boost India’s GDP by 100-200 bps, said experts. For that, the government needs Parliament approval during the ongoing winter session. The main opposition Congress has stalled the passage of the Constitution amendment bill in the Rajya Sabha.
“The implementation of the goods and services tax (GST) in the country is long pending and now the government is moving fast for its implementation. Once implemented, GST will not only replace the sequence of central and state levies such as excise, value-added tax and octroi with a single unified tax and remove double taxation, but will also boost the overall economic growth,” said D K Aggarwal, CMD at SMC Investments and Advisors.
The implementation of GST will lead to a slight drop in prices of goods and also tax burden on the consumer. It will reduce the transit time, thus bringing more efficiency into the system and benefiting manufacturers.
“The direct beneficiary of the GST bill would be manufacturers and logistic companies, including warehouse facilitators. However, it remains to be seen how quickly the government manages to put the new indirect tax regime in place and make it functional,” he added.
Analyst: Hemang Jani, Senior VP, Sharekhan
Maruti Suzuki India: There are very few pockets where you will have very strong visibility of earnings with better margin profiles. Maruti is one stock that is likely to gain from both GST as well as the Seventh Pay Commission recommendations. In terms of valuations, it looks expensive, because a lot of people own it. So there is going to be that scarcity premium. It is going to be a crowded trade, but that is where people want to be in. Some of models launched have been quite good. Baleno has met with a lot of success, so Maruti is a good buy from a one-year perspective.
Century Plyboards: The company is a dominant player in the plywood and in the laminate segment. There is going to be an increase in the urban spending over the next one or two years, and that fits into that particular theme. Most importantly, if the GST bill gets passed, one of the key beneficiary will be players which draw people who are not paying taxes. The introduction of the goods and services tax would create a level-playing field for organised players. Their competitive positioning will get much better, and the overall growth in the plywood segment is going to be about 12-14 per cent.
Unorganised players are currently out of the tax net and thus enjoy lower costs by evading taxes. After the introduction of GST, the tax advantage enjoyed by the unorganised players would diminish sharply and the market share of the organised players is likely increase significantly, benefiting Century. The margin profile and earnings profile of the company is looking much better. In terms of valuation, it might be a little expensive, but given the overall market share they have, it justifies this kind of a premium valuation.
Mahindra & Mahindra: M&M has actually been an underperformer for the last six months or so and it has lost market share in the SUV space, because of increase in competition. But at this price point, Mahindra is looking good valuation wise.
As far as rural demand is concerned, there is not going to be any significant improvement. It has stabilised, and over the next 6 to 12 months there will be some kind of an uptick there. And if GST is implemented, companies that outsource from smaller players are going to be big beneficiaries. So M&M completely fits the bill within that theme.
Research Firm: SBICAP Securities
Dish TV: The stock currently trades at an EV/Ebitda of 11.7 times/9.6 times /7.7 times F16e/F17e/F18e Ebitda. The brokerage expects steady improvement in Dish TV’s financials in the coming quarters, considering a) the differential between DTH and Cable ARPUs are narrowing, boosting DTH adoption and also give scope to raise prices, b) anticipated margin improvement on implementation of GST and TRAI recommendations on DTH license renewal, c) maintaining/improving market share on back of diverse offerings/presence and d) improving cash flows.
Analyst: Parag Thakkar, HDFC Securities
Allcargo, Container Corporation: Goods logistics companies like Allcargo should be one of them to benefit from implementation from GST, or say Container Corporation for example. They always benefit out of this dedicated freight corridor also. Whenever GST is announced or some announcement related to GST comes, these stocks will go up.
Research Firm: Motilal Oswal Financial Services
Jyothy Labs: Jyothy Labs (JYL) is aiming to double its profits in three years and sales in four years. Focus on power brands, extension of product portfolio, distribution expansion and premiumisation coupled with benefits from continued benign RM cost dynamics will be the key growth drivers.
Barring Ujala where it enjoys dominant positioning with 76% market share, JYL’s market share in rest of the portfolio – Mosquito Repellant, Dish-Wash, Soaps, and Detergents – offers scope for expansion.
Given the recent correction in Crude prices, earlier guidance of 400bp gross margin expansion has upside in our view. GST will add 150-200bp to Ebitda margins. However, it will help reduce the complexity of doing business – e.g. litigations pertaining to tax classifications by various state governments will no longer be there if GST is implemented.
Amara Raja Batteries: FY16 is an inflection year for Amara Raja Batteries, with new capacities driving top line and benign lead prices driving margins (+240bp by FY17), translating into 34 per cent EPS CAGR (FY15-17) after muted FY15. Stable competitive environment, significant FCF generation (Rs 700 crore over FY16-17) and improving RoE (4pp by FY17 to 31 per cent)-coupled with potential shift from unorganized to organized players due to GST-would continue to drive stock re-rating.
Research Firm: Angel Broking
Indag Rubber: The current tread manufacturing industry’s size is of Rs 3,200cr, almost equally shared by unorganized and organized players. The tread manufacturing industry grew at a CAGR of 5 per cent over FY2011-14. Going forward, the industry would outperform its historical growth, owing to improved economic activity and an increase in penetration levels considering that the current penetration levels are lower than in developed countries.
Further, the organized sector would gain market share from unorganised players due to a shift in consumer preference for quality retreading products. Also, implementation of the GST, going forward, could reduce the pricing gap between organized and unorganized players, thereby rendering the organized players’ pricing equally attractive.
Transport Corporation of India: Transport Corporation of India (TCIL) benefits from its pan-India scale, which gives it competitive advantage in higher margin segments of the logistics industry; as well as from its asset-light business model which cushions its profitability in cyclical downturns and gives it an attractive ROE profile. The company is well-placed to be a key beneficiary of the anticipated implementation of the GST. On its implementation, there will be a more pronounced requirement among companies for reliable pan-India logistics players to manage their hub-and-spoke supply chains.
Read full article: Economic Times
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