Under the current GST structure, experts see consumer firms benefiting the most.
The Goods and Services Tax (GST) has completed one year on July 1. It will be a year since the introduction was heralded as India’s greatest tax reform to free Indians from multiple taxes, setting the base for a unified common market.
GST revenue mop-up rose to Rs 95,610 crore in June as against Rs 94,016 crore in the previous month, Finance Secretary Hasmukh Adhia said on Sunday. In April, the collections were over Rs 1.03 lakh crore.
Can we call GST a runaway success? Experts say it is too early to call it one right now. Over the course of time, many companies, especially in the organised market, are likely to gain the most.
“GST collections have shown a steady improvement over a period of time. It had reached a peak of Rs 1 lakh crore in April. That was due to year-end compliance for FY18. Average monthly collections for FY18 was Rs 89,000 crore,” Parag Mehta of NA Shah Associates said.
The total number of indirect taxpayers has increased from 66.17 lakh to 1.12 crore. At the same time, there is a large increase in voluntary registrations, more than 54.3 percent of those eligible to register under the composition scheme have chosen instead to be regular filers.
Mehta added that collections are further improving due to higher compliance levels and around 70 percent returns filing. “Collection figures of Rs 94,016 crore in May and Rs 95,610 in June clearly reflects the business sentiments.”
So, which sectors are likely to benefit the most going forward?
The benefits of GST will only be realised over a period of time if petroleum products are brought under the GST ambit. Under the current GST structure, experts see consumer firms benefiting the most.
Shailendra Kumar, CIO at Narnolia Financial Advisors, said, “Along with GST, rising urbanisation and premiumisation by aspirational middle class, will move the balance of power firmly in favour of professionalised formal businesses. The major beneficiary of this trend would be: On the product side: jewellery, plywood, apparels, dairy, luggage, air coolers and confectionary manufacturers. On the services side: hospitals, diagnostics, contract staffing, retails, hotels, SME credit and logistics companies.”
Vivek Ranjan Misra, Head Fundamental Research at Karvy Stock Broking, too seconds this view. “Consumer firms will benefit the most as they pass on benefits of GST to consumers. Volumes will also increase. From our coverage V-Mart Retail, Britannia Industries and Bata India are beneficiaries of GST rollout. Apar Industries is a beneficiary on account of the tax rate.”
Here is a list of top 10 stocks that are likely to benefit the most from implementation of GST:
Analyst: D K Aggarwal, Chairman, and MD, SMC Investments and Advisors
Exide Industries Limited is a manufacturer of lead acid storage batteries for automotive and industrial applications. The Life Insurance business segment is engaged in life insurance business carried by one of its subsidiaries.
The Company has the advantage of having strong brand value, large network, widely spread product range, strong partners, and collaborators relationship. It is fully prepared to meet the challenge of competition, leveraging its competitive strengths of network quality, technology, product range and brand value.
As the company is one of the largest leaders in the battery space, it is likely to get the benefit, if the demand scenario improves. Moreover, it is also expected that cost reduction initiative and focuses on profitable segment would drive the margins going forward.
Jyothy Laboratories Limited is a multi-brand, multi-product company focused on fast-moving consumer goods industry. Gradual pickup in consumer demand, government initiatives and focus on rural would further aid in improving the performance of the company.
With continued efforts of differentiated positioning, the company is confident of capturing greater consumer mindshare which would help it grow ahead of the market.
According to the management, the industry should grow by 10-12 percent and it should be doing slightly better than the industry. The company would be looking at least 25 percent market share in the next 5-6 years in the segment.
Havells India Limited is one of India’s largest & fastest growing electrical and power distribution equipment manufacturers with products ranging from industrial & domestic usage.
It owns some of the prestigious global brands like Crabtree, Reo & Standard Electrical. It now operates a network of 90+ branches and representative offices in over 50 countries with a network of 20,000 distributors.
The company has Consistent growth in each business parameter and it would be directly benefitted by the Government initiatives such as “Housing and power for all”. It is best placed to attain scale across businesses with its new SBU (Strategic Business Unit) structure and focused product-wise branding strategy
NRB Bearings is an anti-friction bearing solution provider, offering end-to-end bearing solutions to its customers across the globe. The company has regularly invested in modern manufacturing technology and has taken a number of initiatives to strengthen its competitive advantage.
The bearing sector is in a sweet spot on the back of secular growth in the automobile sector, uptick in the industrial segment, and improvement in technology, which would lead of increase in content per vehicle.
Analyst: Shailendra Kumar, Chief Investment Officer at Narnolia Financial Advisors Ltd
Organized retail industry in India constitutes over 10 percent of the total retail sector whereas the same is 20 percent in China and above 80 percent in the US. DeMon and GST along with changing lifestyle has triggered large value migration from unorganized retail to organized retail.
We believe retail sector is poised to grow with 20 percent CAGR over the next 5 years. Trent’s strong balance sheet, strong business positioning and store expansion plan make it an attractive bet for the long-term investment. Investors can buy the stock now for a target of Rs 355 which implies 4x EV/Sales on FY20.
Medium Density Fibre Board or (MDF) businesses of organized players are replacing the lowest end plywood business of unorganized players.
Though in the recent quarter's competition have intensified among organized players in MDF but the huge potential of the shift from the unorganized segment (constitutes more than 2/3rd of the market) particularly post strict implementation of E-way bill gives confidence that management would deliver on its promise of 25 percent revenue growth in FY19.
TCI Express Ltd:GST & e-way bill would result in a shift of market share in favor of organized players in logistics.
Express delivery is premium and a significant segment of the Logistics Industry.
The segment is expected to grow by over 17 percent on a YoY in the next 3 years. TCI Express is focused primarily on the most profitable segment of B2B space. It has ROCE of 40 percent.
The management expects 2.5x volume growth over the next 5 years also EBITDA margin is expected to rise from 11 percent to over 15 percent in the next 2 years. Investors can buy the stock for a target of Rs 700 which implies 23 P/E on FY20.
Titan Company Ltd:
The market share of organized players in the jewelry space is minuscule and that suggest the opportunity for growth once GST stabilizes by FY20. Titan aspires to grow jewelry sales by 150 percent cumulative between FY2018-23E. Growth will trigger further margin expansion led by operating leverage.
High-value diamond jewelry sales proportion is likely to increase from 30 percent of diamond jewelry sales in FY18 to 50% in FY23. The contribution of Exchange sales segment is set to reach 50 percent by FY23.
A higher proportion of exchange sales reduces the vulnerability to import curbs on gold. Investors can buy now for a target of Rs 1,050 which implies 10x P/B on FY20.
Analyst: Sumit Bilgaiyan, Founder of Equity99
NCC has consistently focused on execution which is backed by strong order backlog which makes it one of the best stocks in infrastructure basket.
If you look at the Q4FY18 numbers, it has delivered a robust performance with its revenue and EBITDA growing by 12 percent YoY and 75 percent YoY respectively, which led to EBITDA margin expansion to 12.7 percent during the quarter.
We believe NCC will ramp up its orders in FY19 quite aggressively which will lead to a pick-up in execution and better mobilisation of resources which will lead to profit and margins expansion aided by better topline growth.
NCC has 4x of order book compared to FY18 topline. Looking at the massive pile-up of domestic orders, NCC is looking to shut down its international operations over the next 6-12 months.
This is quite a positive step as it will allow NCC to consolidate its position in the market. We are recommending a Buy.
Radico Khaitan is one of the largest players in the Indian liquor industry. It became the first company to conceptualise the innovative idea of offering scotch blended whiskey and the first company to position 8-PM as India's premium whiskey.
With improving demand scenario for liquor and execution on track it has witnessed a rise in volume growth, margin expansion, and free cash flow generation.
Uttar Pradesh is an important market for Radico Khaitan where the new government introduced ‘go-to-market’ distribution model. This is positive for strong brands including Radico Khaitan.
The demand is recovering in both premium and regular segments. It is guiding for 10 percent volume growth in premium and 4 percent in the regular segment.
Margins should expand due to improving product mix and benign raw material prices. We are recommending a Buy.Disclaimer: The author is Founder of Equity99. The views and investment tips expressed by investment experts on moneycontrol.com are his own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.