ITC, Voltas, Titan among top 5 stocks to buy as GST inches closer to reality

The Council also approved a maximum of 15 percent cess on top of the peak GST rate of 28 percent on luxury goods and aerated drinks.

"Tobacco cess will be capped at a mixture of Rs 4,170 per 1,000 sticks or ad valorem of 290 percent. Cess on coal would be at Rs 400 per ton. No decision has been taken to levy cess on bidis as of now," an official said.

Going by the buzz on D-Street we have collated a list of the top five stocks which are likely to benefit more from the implementation of GST:

ITC: BUY| Target Rs 325

CLSA maintains a buy rating on ITC with a 12-month target price of Rs 325 as GST tax structure is likely to be a revenue-neutral outcome which comes as a big relief for ITC.

The government has come up with a cap on cess for several products and there is a cap of Rs 4.17/stick or 290 percent ad valorem on cigarettes – by itself, this information does not help and in fact adds to the confusion.

Media reports indicate there would be no excise duty on top of cess (along with 28 percent GST). “We see this as positive news for ITC, given that there have been investor concerns on the eventual outcome as tobacco has been identified among the sectors to be tapped for compensation to states in case of a revenue shortfall,” said the CLSA report.

Voltas: BUY| Target Rs 448

ICICI Securities maintains a buy rating on Voltas with a target price of Rs 448. Voltas is a market leader in the air conditioners segment and the share price has been trending up post its Q32017 earnings outcome as worries of demonetisation impact on sales faded away.

The discretionary spending in India will receive a significant boost primarily driven by expectation of robust economic growth. Despite various challenges such as demonetisation and rising input prices Voltas has retained its top position with 21 percent market share in the RAC segment, due to its strong reach in tier-II and tier-III cities.

Strong fundamentals (net cash status, RoCE and RoE of 24 percent, 18 percent), dividend payout of ~30 percent and ability to pass on the rising input prices and lowest penetration of AC in India (among other white goods items) suggests the long-term growth story of Voltas will remain intact.

Teamlease: BUY| Target Rs 1200

Kotak Institutional Equities upgraded the stock to buy from Add earlier with a target price of Rs 1,200. The domestic brokerage firm is of the view that the recent correction, as well as the underperformance of stock presents good buying opportunity.

Kotak believes that structural drivers such as GST, labour law simplification will sustain stable growth. TeamLease's core temporary staffing business seems to be on a solid footing, it said.

Titan Company Ltd: BUY| Target Rs 548

ICICI Securities maintains a buy rating on Titan Company with a target price of Rs 548 as the impact of demonetisation was much more significant for unorganised players due to a higher proportion of cash transactions compared to the organised market.

This led to an increase in market share for Titan as many unorganised players have lost market share significantly. In addition to the rollout of GST Titan would be a beneficiary of the shift from unorganised to organised players.

“The company is also looking at garnering a higher share of studded jewellery, which would aid margin growth in FY18E and FY19E. The company is expected to gain market share driven by the shift from unorganised to organised players,” it said.

Kansai Nerolac: BUY| Target Rs 425

ICICI Securities maintains a buy rating on Kansai Nerolac with a target of Rs 425. Kansai is well placed in the industrial and decorative paints segments to benefit from a boost in consumption due to the higher disposable income (on account of Seventh Pay Commission) GST and expectation of better monsoons.

With sustainable revenue growth, improving margins, higher free cash flows and expanding return ratios, Kansai would continue to command premium valuation multiples compared to its historic averages

“We have modelled revenue, earning CAGR of 13 percent and 9 percent, respectively, for FY17E-19E and value the company on 38x FY19E earnings with target price at Rs 425/share,” said the report.

 (Views and recommendations given in this section are the analysts' own and do not represent those of Moneycontrol.com. Please consult your financial adviser before taking any position in the stock/s mentioned.)