GST rate cut: Consumer discretionary stocks rise : 24-07-2018

Shares of consumer discretionary companies rallied on Monday after the government’s decision to slash Goods and Services Tax (GST) rates on a wide range of items cheered investors. The stocks of footwear firms such as Relaxo Footwears and Bata India surged to their record highs.
The stock of Procter & Gamble also hit a fresh lifetime high of Rs 10,505.70 on BSE.

Liberty Shoes rallied the most with a 10.4% gain, followed by Bata India, up 6.7%. Bajaj Electricals and V-Guard Industries also surged 5.9% and 5.3%, respectively. Market participants pointed out that the latest rate cut in GST would provide material boost to the earnings of companies in this space as it will help to boost consumption demand.

While the taxable ceiling for footwear was raised to Rs 1,000 from Rs 500 under the 5% slab, GST on paints, refrigerators, washing machines, vacuum cleaners, water heaters and small TVs was reduced to 18% from 28%. Better-than-expected numbers posted by Bata India in the first quarter of FY19 also boosted investor sentiment.

The footwear major reported a net profit of Rs 82.6 crore, beating the Bloomberg consensus estimate of Rs 72.5 crore for the three months to June 2018.
Ambit Capital, which has a sell rating on the stock, observed the revenue growth of Bata India was led by End of Season Sale (EoSS). “The gross margin expanded by 50 bps y-o-y to 53.3% due to lower net sales value on account of GST and deflation in cost of goods sold given GST-led benefits,” added the brokerage.

The Ebitda of Bata India grew 38% year-on-year to Rs 131.8 crore largely due to GST-led input tax credit benefits on expenses such as rent and other expenses, the brokerage said. Shares of cigarette producers Godfrey Phillips and ITC also rose as the GST Council kept the cess on cigarettes unchanged. While the stock of Godfrey Phillips rallied 8% — its biggest single-day percentage gain in 2018 — ITC gained 3.8% to close at Rs 283.85 on BSE.

The gains in the stock of ITC also propelled the benchmark Sensex to close at a fresh-lifetime high of 36,718.60. The cigarette major contributed 40% of the index gain of 222.23 points on Monday. The BSE Consumer Durable Index rose 1.3% –its biggest single day gain in three weeks– to end at 20,232.58. After the revised rates, only 35 items will be left in the 28% bracket, from 226 goods as on July 1 last year.

Source : PTI

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