Consumer companies to benefit the most from GST rates

Telecom firms to be impacted as they come under 18% slab; aviation, auto among other losers

Consumer staples, consumer durables and multiplex entities would have the biggest benefit from the proposed goods and services tax (GST) rates, say analysts.
 

This is on account of the savings in this regard. Though the final classification of products in different slabs is not final, brokerages have done rough calculations on the impact.
 

"The benefit of lower taxes from the current level of around 27 per cent to 18 per cent is likely to accrue to basic staples companies such as Hindustan Unilever, Dabur, Colgate, Marico and brown & white goods producing companies which cater to mass consumers, such as Bajaj Electricals, Havells, Crompton Greaves and Whirlpool," says Dhananjay Sinha, head, institutional equity, Emkay Global Financial Services. 
 

Multiplex companies currently pay entertainment tax of 27 per cent on net ticket sales and value added tax on food and beverage sales. Under the GST regime, they will be able to offset the service tax they pay on costs against entertainment tax. PVR pays entertainment tax of about 22 per cent and stands to gain; GST will be neutral for Inox Leisure, which pays 18 per cent. 
 

Additionally, cable companies such as Hathway or Den currently pay a combined tax rate of 25 per cent; for direct-to-home entities such as Dish TV, it is about 23 per cent. A lower GST rate will be a positive, say analysts. Logistics companies such as Gateway Distriparks or Blue Dart Express also stand to benefit from reduction in tax complexity between states and supply chain improvements. 

Companies in the metals sector, biscuit makers (Britannia, ITC) and banks will not see a meaningful impact from GST implementation, due to limited disparity in the current tax paid by them and the proposed slabs.  

On the flip side, telecom companies will be negatively hit. Their service tax rates will increase by 300 basis points to 18 per cent in the GST mechanism. "This impact will likely get partly absorbed by telecom companies and partly passed on to subscribers (unlikely to impact demand). Nonetheless, savings on entry tax would cushion the impact," write analysts at JM Financial, led by Suhas Harinarayanan. 
 

Aviation companies will be hit, as they will not be allowed to claim input credit for the tax paid on their main input, air turbine fuel, under the GST regime. Any rate above the six per cent paid by aviation companies currently will, thus, have a negative bearing on their financials, believe analysts.

Automobiles will see a mixed impact. While the rate for most vehicle categories will remain unchanged (tractors, SUVs, cars with engine size above 1,500 cc and mid-size cars), that for two-wheelers, small cars and commercial vehicles could go from 23.7 per cent currently to up to 28 per cent. If implemented, this could be negative for Maruti Suzuki, Bajaj Auto, Hero MotoCorp and TVS Motor, believe analysts.

The rate on jewellery could double from two per cent to four per cent, adversely impacting Titan and PC Jeweller, among others. 

These are still initial days and clarity on cess and the 'sin' tax will be awaited by investors, particularly to assess the impact on luxury goods and cigarettes. Stocks, though, have already started factoring in the GST impact, albeit partly.The GST Council's desire to limit inflationary pressure from the new tax is a positive.

After the Council finalised a rate structure on Thursday with slabs of zero per cent, 5 per cent, 12 per cent, 18 per cent and 28 per cent, most experts believe the new tax regime is likely to meet the targeted implementation date of April 1, 2017.