18 June 2016

Sectoral impact of likely passage of GST Bill


*2w,Small Cars, CVs – Hero, Bajaj, TVS, Eicher, AL, Maruti*

Currently, the total tax outgo is ~27% (Excise + VAT + CST). A Standard rate of 18% would lead to a ~9% reduction in vehicle prices thereby stimulating demand. OEMs would benefit largely from savings on logistics and warehousing related costs and a simplified tax maintenance structure.

*Large Cars – M&M*

Currently, M&M’s total tax outgo in the UV segment is ~45% (excise + VAT + CST). Luxury cars are recommended to be taxed at higher/demerit tax rate of 40%. UV prices are therefore, likely to reduce by ~5%. We see very little possibility of the SUV segment taxed at a standard rate of 18%, which if happens, can reduce prices by ~27%. Large carmakers would again benefit largely from  savings on logistics and warehousing related costs and a simplified tax maintenance structure.

*Tractors – M&M, Escorts*

Tractors is completely exempted from excise and pays an exempted rate of 4% on VAT. As such total tax outgo (including CST) would be ~6%. Note that as tractors is exempt from excise, OEMs currently receive no MODVAT benefit, leading to an indirect excise duty of ~7% and hence a total tax outgo of ~13%. Tractors are likely to be taxed at the ‘Low’ GST rate of 12%, thereby keeping product prices unchanged.

*Auto Ancillaries*

*Batteries – Exide, Amara Raja*

Other players with vast unorganized segments in the replacement market

GST implementation is expected to bring the unorganized players in the tax net – this should reduce the price gap between organized and unorganized players. Battery industry, with ~40% of the replacement market still unorganized, and is likely to benefit from the same and we expect organized players to gain market share. Other smaller auto ancs, catering to replacement market and competing with the unorganized segment are likely to similarly benefit.

*Building materials*

*Tiles – Kajaria*

Currently unorganised sector (~50% of the industry) benefits from tax evasion and lower tax rates at 18% vs current duty of 25-27% paid by the organised players 25-27% will reduce the gap between organised and organized


*Plywood – Centuryply*

Currently, unorganised sector (~75% of the industry) imports raw material without paying duty and final goods are sold without any duty.



Though, 18% tax rate will be lower than what the companies are paying currently (~24.5% excise and VAT), we believe that the companies will pass on the benefits to consumers as demand continues to remain weak. The sector will benefit only when the pricing power is strong in the hands of manufacturers.

*Consumer Durables*


Large unorganised sector in the air cooler industry (~85% of total market).  

The unorganized segment of the consumer durables segment have been evading the indirect taxes for the past many years.  The introduction of GST will bring them within the ambit of indirect taxes and would most likely impact their competitive advantage in terms of pricing.  The narrowing of the price differential between the organised and unorganised players would help the organised players increase their market share.


*Consumer and Retail Sector*

*FMCG Staples*

*HUL, Colgate, Britannia, GSK Consumer, Nestle, Dabur, Emami, Marico, Godrej Cons*

*Building Products*

*Asian Paints, Berger, Havells, Pidilite, HSIL*


§ All consumer companies will stand to gain with respect to supply chain and logistic.

§ Indirect tax rate will come down to (as per recommendations to possibly 18%) which would lead to higher purchasing power. 

§ More players to come under tax net. Thus, competitiveness of organized players to further improve.

§ In Categories, which have high pricing power, reduction might not be as much and hence, the benefits will flow down.


*Fashion Retail*

*Shoppers Stop*


Retailers will benefit from reduced logistics related costs


*Jewellery Retail*

*PC Jeweller, Titan*

·         Jewelry retailers too, will benefit from reduced logistics costs

·         However, a higher rate on precious metals and gold could impact demand




*Sadbhav Engineering*

*IL &FS Transportation*


Implementation of e-permit/e-tolling systems, post GST, will help manufacturers save on logistics costs by reducing travel time, reducing the need for warehouses in multiple states and the need for buffer inventory




*Dish Tv & PVR*


§ Dish TV: The company currently pays ~22% tax on revenues (assuming E-tax rate of 7.5% of revenue) and 4% as special additional duty (SAD). With GST implementation, total tax outgo will reduce depending on the final GST rate (we have done scenario analysis in table below). Further, SAD will also get subsumed with GST implementation. At 18% GST rate, Dish TV would have margin expansion 400bps. We have not assumed 1% additional inter-state movement surcharge as there is no clarity on the same.

§ PVR: The company currently pays    22% E-Tax on gross ticket sales, 7-8% VAT on F&B sales, service tax on inputs (rentals, maintenance and others). With GST implementation total tax outgo will reduce depending on the final GST rate (we have done scenario analysis in table below). Primary benefit to PVR would be offset of service tax paid on inputs (~Rs600-650mn in FY16), this amount will further increase as service tax rate will also increase from 14.5% to 18% (in GST regime). At 18% GST rate, PVR would see EBITDA upgrade of 22% on our current assumption Rs4010mn for FY17E, implying 400-500bps margin expansion.

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