The to pass on the price benefit.
The passing of the goods and services tax bill is a big achievement
for the consumer durable industry as also for makers of building materials such
as tiles, plyboard and sanitary ware.
By reducing the
net tax outgo, the new tax regime will lower end-prices of products. Though,
that all these industries are looking for a demand-push, the manufacturers are
likely to pass on the price benefit. This will lead to revenue growth. The GST
regime will reduce the price differentiation between products of organised
players and those of their competitors in the unorganised space. In tiles and
ply boards for instance, the price difference between unbranded and branded
goods is almost 10-15 per cent. So, as the new tax is implemented, more consumers
may shift to branded products as the price difference reduces – this is a major
advantage for players such as Kajaria Ceramics, Somany Ceramics, Cera
Sanitaryware and Greenply in the listed space.
The other plus of
the new tax which players such as Havells India and Whirlpool of India have
highlighted is that it will reduce their logistics and inventory handling
costs. Share of roads in freight traffic in the country is 72 per cent,
indicates the economic survey data of 2015. Thus, as GST replaces the central
sales tax on inter-state sale of goods and several other levies, costs for
manufacturers will come down. It will help companies to save on investments in
manufacturing facilities as well. Now, goods produced within a state attract
lower tax than those produced outside. This forces companies to consider
setting up of manufacturing facilities near all their different markets.
However, one thing
that companies may have to watch out for is whether excise duty exemption zones
continue to get that benefit. If not, some companies such as V-Guard Industries
and Bajaj Electricals which have manufacturing plants in excise free zones may
see costs rise (impact will be lower if tax refund is allowed).