Consumption stocks sizzled on Dalal Street, with various consumer staples and durables counters rallying up to nine percent in trade on Monday, August 18, as reports of likely GST rationalization sparked buying interest.
GST may be rationalised into two major slabs: five percent and 18 percent, according to most reports, with a sin tax rate of 40 percent. Emkay Global noted that the development would be a massive positive for India as it is a consumption stimulus, spurring sales and revenue growth.
FMCG stocks are among the key beneficiaries. Food and beverages currently fall under 5 percent, 12 percent and 18 percent GST slabs. Several items in the 12 percent bracket, such as ghee, butter, cheese, paneer, bottled water, juices, instant noodles, pasta, wafers and Chyawanprash, could shift to 5 percent. This would benefit Bikaji (about 80 percent of revenue) and Gopal Snacks (about 85 percent), while Nestlé India may see relief in around 30 percent of its portfolio.
Dabur India could gain in beverages and Chyawanprash (about 23 percent of India revenue), ITC in its other FMCG segment (about 11 percent of revenue), and Britannia in dairy and wafers (less than 5 percent). Marico and HUL would also benefit, though to a smaller extent, noted Emkay Global.
At 10.35 a.m., the Nifty FMCG index was trading higher by 1.6 percent, with index constituents Nestle India, Dabur India and HUL leading the gains, rallying up to six percent.
Consumer durables also rallied sharply, the Nifty Consumer Durables index jumped nearly 4 percent, up 3.7 percent. At the top of the index, EMS and Room Air Conditioner players were leading the pack. PG Electroplast, Amber Enterprises, Blue Star and Voltas stocks rose the most, up to 9 percent.
Emkay Global noted the positives for room air conditioner stocks:
Voltas: Room air conditioners (RACs) make up 53 percent of total revenue, with the Unitary Cooling Products (UCP) segment, 77 percent of which comes from RACs, accounting for 86 percent of the company’s sum-of-the-parts (SoTP) valuation.
Blue Star: RACs contribute 35 percent to overall revenue, while the Unitary Products segment forms 55 percent of SoTP, with RACs driving 75 percent of that segment’s revenue.
The brokerage added that contract manufacturers like PG Electroplast (sitting on huge inventory; 62 percent revenue contribution from ACs) would also benefit.
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