From Godrej Industries to VRL Logistics, a look at stocks that are set to reap in benefits from the unified tax regime.
The Lok Sabha on Wednesday passed four crucial legislations to introduce a countrywide Goods and Services Tax (GST) bringing India closer to a unified tax regime and while putting an ending uncertainty which is positive for markets.
The Lok Sabha passed the Central GST Bill, 2017 (CGST Bill), Integrated GST Bill, 2017 (IGST Bill), Union Territory GST Bill, 2017 (UTGST Bill) and the GST (Compensation to the States) Bill 2017 after more than eight hours of debate.
The passage of the Bills marks a big step forward in India’s plans to rollout GST from July 1.
The fifth law, SGST Bill will be taken by the state governments through their cabinets to the respective state assemblies.
Macquarie Securities Group believes that the risk reward is in favour of investors and one could look at domestic stories in the current set-up with a measured approach.
There are headwinds in the case of export stories due to political uncertainty and regulatory issues, Sandeep Bhatia, Head-Equity, India, Macquarie Securities Group told CNBC-TV18.
Bhatia has a portfolio strategy that is focused on India. He recommends looking at beneficiaries from GST implementation such as ITC.
We have collated a list of top 5 stocks recommended by various brokerage firms which are likely to benefit more from the implementation of GST:
Godrej Industries: BUY| Target Rs 594
SMC Global Securities maintains a buy rating with a 12-month target price of Rs 594. In FY18, management expects the implementation of GST would provide strong momentum for a much better economic environment and stronger consumer demand.
Going forward, through its CREATE strategy, the company would continue to strengthen its position in all its core businesses while fostering an inspiring growth was ahead of sales growth, despite a strong place to work, said the note.
SMC Global expects the stock to see a price target of Rs 594 in 8 to 10 months. The company chemicals business has also P/E of 41x and FY18 (E) earnings of 14.48.
Dabur India: BUY| Target Rs 333
Edelweiss Securities maintains a buy recommendation on Dabur India with a target price of Rs 333. The brokerage firm expects a recovery in volumes and premiumisation. The uptick in rural spending, new launches in herbal and government’s stimulus remain key triggers.
Volume growth is expected to stabilise starting Q1FY18, though Q4FY17 could remain muted. Volume growth can be in mid to single digits in H1FY18 and lower double digit in H2FY18.
“Q4FY17 will see a significant cut in promotions, which will be ploughed to ad-spends. Dabur launched gel format of Red toothpaste in few states. Distributor inventory has declined to 25 days from 37 earlier. GST implementation can impact performance in short term. Dabur lost 300bps market share in Chyawanprash and 600bps in honey,” said the report.
VRL Logistics: BUY| Target Rs 320; Stop Loss Rs 296
Amrapali Aadya Trading & Investments maintains a buy rating on VRL Logistics with a short term target price of Rs 296. For quite some time, the stock was trading at congestion zone around Rs 300. With road block clear for GST play from July 2017 it has now come out from its long congestion period on Wednesday.
It has strong support placed at Rs 295 which is also its short-term and long-term moving average. On the daily chart, it has formed a strong bull candle which closes higher breaking above its range.
Transport Corporation of India: BUY| Target Rs 272
Bonanza Portfolio maintains a buy recommendation on Trasport Corporation of India with a target price of Rs 272. The Indian logistics industry is plagued by multiple levels of state and central taxes. The product is prone to double taxation as taxes already paid on inputs are not adjusted on the calculation of taxes on the final product.
Implementation of GST would lead to rationalizing of taxes on production, distribution and inventory management. GST would simplify these complications and benefit consumers, produces and the government.
“Given the government stress on coastal shipping, benefit from GST and demerger of XPS division, TCI is better placed to increase revenue from its freight business, hence assigning a P/E multiple of 16x on FY18E EPS of Rs 17.06 to arrive at a fair price of Rs 272/share,” said the report.
TeamLease Services: BUY| Target Rs 1,200
Kotak Institutional Equities upgraded TeamLease Services to buy from Add earlier in the month of March with a target price of Rs 1,200.
The brokerage house believes recent correction and underperformance of the stock price present a good buying opportunity into TeamLease’s long-term structural growth story of organised staffing, underpinned by GST implementation and simplification of labour laws.
It feels GST (goods & services tax) implementation can reduce the pricing gap between organised and unorganised staffing companies. Currently, unorganised staffing companies are cheaper by 20-25 percent below organised companies, largely due to non-payment of statutory levies such as employee provident fund.
Kotak upgraded its EPS estimates by 16-22 percent as it built in a change in accounting policy related to amortisation of goodwill. The tax rate may also be low as TeamLease may still be able to take income tax advantage of around Rs 3 crore a year for 10 years on goodwill amortisation within its subsidiary post a high court approval.
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