The passing of the goods and services tax bill is a big achievementfor the consumer durable industry as also for makers of building materials suchas tiles, plyboard and sanitary ware.First, by reducingthe 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 arelikely to pass on the price benefit. This will lead to revenue growth.Secondly, the GST regime will reduce the price differential between products oforganised players and those of their competitors in the unorganised space. Intiles and ply boards for instance, the price difference between unbranded andbranded goods is almost 10-15 per cent.
So, as the new tax is implemented, moreconsumers may shift to branded products as the price difference reduces – thisis a major advantage for players such as Kajaria Ceramics, Somany Ceramics,Cera Sanitaryware and Greenply in the listed space.The other plus ofthe new tax which players such as Havells India and Whirlpool of India havehighlighted is that it will reduce their logistics and inventory handlingcosts. 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 centralsales tax on inter-state sale of goods and several other levies, costs formanufacturers will come down. It will help companies to save on investments inmanufacturing facilities too.
Now, goods produced within a state attract lowertax than those produced outside. This forces companies to consider setting upof manufacturing facilities near all their different markets.However, one thingthat companies may have to watch out for is whether excise duty exemption zonescontinue to get that benefit. If not, some companies such as V-Guard Industriesand Bajaj Electricals which have manufacturing plants in excise free zones maysee costs rise (impact will be lower if tax refund is allowed).