The Goods and Services Tax regime was six months old when 2018 began. There were elevated expectations about the gains from the new tax accruing to listed companies in the initial months.
Business was expected to shift from unorganised to organised segment, helping listed companies. With a larger number of unregistered entities falling under the tax-net, the higher tax on their sales was expected to render their products relatively uncompetitive. Consumer durables, tiles and sanitary ware were some of the sectors that were expected to benefit from this shift. Faster road transport due to removal of entry taxes was expected to help road transport players too.
But low compliance in the GST is resulting in continued price differential between the products sold in the formal and informal sectors. Phased implementation and lax regulation of e-Way bills is making things difficult for road transport companies too. Besides these factors, stocks of listed companies have also suffered from the broad-based correction in Indian stock market in 2018.
Consumer durable makers struggle
Consumer durables makers including Whirlpool, Blue Star and Symphony moved up sharply in 2017, in anticipation of higher revenue due to GST roll-out. But they have given up between 20 to 34 per cent of their stock value in 2018 as their financial performance fell short. Symphony and Whirlpool recorded flat to negative revenue growth in the June and September quarter of FY19.
The management of Symphony, in its earnings call called for tempering expectation from GST, saying that getting a share from the unorganised sector is “illusive”. While there is a gradual shift from 100 per cent share from unorganised sector, 30 years ago, to 75 per cent now, the shift is ongoing and gradual. “We cannot really match their (unorganised players’) pricing or the way they operate, doing a fair amount of under invoicing”.
Stock prices of tiles and sanitary ware manufacturers that had a dream-run in 2017 too declined 30-70 per cent this calendar. Larger players such as Kajaria, Somany and HSIL witnessed a steep erosion in profitability due to increase in gas prices and over-supply in the sector, besides sluggish off-take from the real estate sector.
A speed-bump
The other segment that was expected to benefit from GST roll-out — road transport — has fared relatively better. With the abolishing of octroi, entry tax and other local taxes, the running time of transport fleets has reduced by at least 20 per cent, according to a study done by ICRA. Besides implementation of e-Way bills is reducing the time taken in checking.
While the revenue growth of larger road transport players such as VRL Logistics, Snowman Logistics and Allcargo Logistics recorded steady growth, their profitability was eroded by spike in crude oil prices. Stocks in this segment declined between 30 and 50 per cent this calendar.