6 stocks that can gain immediately under GST regime

ETIG: The stocks of Aditya Birla Fashion and Retail, Castrol, ITC, Mahindra and Mahindra, Page Industries and Titan are gaining momentum since investors are interpreting the effect of the Goods and Services Tax (GST) to be largely positive on these companies. In addition, the announcement of GST rates for various categories of products and services has reduced regulatory uncertainty to a great extent. In this backdrop, the ET Intelligence Group details the outlook on these companies.

ADITYA BIRLA FASHION AND RETAIL: The earnings upgrade for the company came following lower GST tax for the readymade garment priced above Rs 1,000 at 12%, which is lower than the expectation of 18%. Besides, with the benefit of the input tax credit, operating margin may expand after the GST implementation.

CASTROL: Being the market leader in the branded lubricant segment, the company is likely to benefit the most due to lower prices of lubricant under the GST. The lower prices will help to improve volume growth, which remained flat in the March'17 quarter.

ITC: GST will remove the 'tax on tax' imposed by various states on cigarettes and also the fear of states individually changing taxes each year. The revenue secretary's statement that excise duty would not change for five years is another positive. ITC's projected EPS may increase by 8-22%. Analysts have upgraded price-earnings (PE) multiple by 25-45%.

M&M: The price cut of the largesized passenger cars under the GST regime will help arrest the moderating volumes of the automotive segment. The prices of Scorpio and XUV 500 will be lower by 3-4% after the GST implementation. Besides, the benefit of input tax credit for the tractor segment will help to improve its margins.

PAGE INDUSTRIES: The GST rate of 5% on readymade garments priced below Rs 1,000 compared with the current effective tax rate of 9-10%. This may result in 3-4% drop in retail prices of garments sold by Page under the brand name Jockey thereby expanding market share. The company has 7% and 5% market share in men and women inner-wear segments, respectively. The street has upgraded projected EPS for the current year by 4-5%. Credit Suisse has increased the stock's target price to `15,000 from `12,000.

TITAN: The GST rate of 3% for gold and diamond jewellery is significantly lower than the market's expectation of 5-6%.The lower rate will increase more compliance among the unorganised sector and plug tax leakage.This is likely to help organised the sector to expand market share.Titan's jewellery sales grew by 3% annually between FY13 and FY17. With the favourable GST rate, analysts expect the jewellery segment to grow by 25% between FY17 and FY19. Titan's EPS is expected to grow 20% annually in the next two years compared with 8% growth prior to GST rates.