Blue Star, Voltas, Symphony: AC stocks shine in trade; here is how GST reforms will aid firms

On Friday, August 15, in his Independence Day speech at the historic Red Fort, PM Narendra Modi announced that the GST rates will be lowered by Diwali, bringing down prices of everyday use items, as his government looks to reform the eight-year-old tax regime that has been plagued by litigation and evasions.

The central government has proposed two tax rates of 5% and 18% in the revamped Goods and Services Tax (GST), slated to replace the current indirect tax regime by Diwali this year, PTI reported, citing highly placed sources.

The Centre has sent its proposal, which removes 12% and 28% slabs, to the panel of state finance ministers on GST rate rationalisation. They will now discuss it and place it before the GST Council. The council is expected to meet next month.

While 0 per cent GST is charged on essential food items, 5% is charged on daily use items, 12% on standard goods, 18% on electronics and services and 28% on luxury and sin goods. The revamped GST regime will have two slabs plus a special rate of 40% for luxury and sin goods, PTI reported.

The move led to a rally in almost all sectors, but consumer-facing stocks such as auto, consumer durables, consumer discretionary, and FMCG stocks saw the biggest rally.

AC stocks, too, were in heavy demand after the big-bang reforms announcement.

The appliance makers expect a good churn in the festive season, led by the government's proposal to reduce the GST slab on air conditioners from the current 28% to 18%, which will reduce the price from ₹1,500 to ₹2,500 depending on the models.

Moreover, this reduction in price, which has come after the government's recent income tax cut and repo rate revision, will not only help in increasing penetration of ACs but also premiumisation, where people will buy energy-efficient models due to cost advantages.

Terming it as a "great move", Blue Star Managing Director B. Thiagarajan has asked the government to implement the changes quickly, as people have put their purchase of room air conditioners on hold.

"Nobody will buy RAC (room ACs) now in August; they will wait till September or October 1. So, in between, “the dealers will not buy, and customers will not buy,” Thiagarajan told PTI.

On being asked about the price benefit to the customer, he said, "This will be around 10%," as the GST is levied on the final pricing.

Panasonic Life Solutions India Chairman Manish Sharma said the industry was expecting around 12% GST on energy-efficient products and the rest in the 18% bracket.

However, "in a situation where GST on ACs and other appliances is reduced from 28 to 18%, there will be a straight 6 to 7% odd price reduction in the market, because normally GST is charged on the base price. So, this is phenomenal," Sharma said.

This will result in a reduction of ₹1,500 to ₹2,500 depending on the end consumer prices of an AC, depending on the models, he said.

Similarly, Godrej Appliances said the proposed reduction in tax slabs will significantly help to boost consumption and drive appliance demand.

"The AC penetration level in India is still low at 9 to 10%. Therefore, GST reduction from 28 to 18% on ACs can help to make them more affordable to the masses and improve the quality of life for many Indians," said Kamal Nandi, business head & EVP, Appliances Business at Godrej Enterprises Group.

According to Nandi, currently room ACs are taxed at 28%, and other appliances such as refrigerators, washing machines, and microwaves already have 18% GST.

How shares are faring

At the time of writing this report, Blue Star was trading 7.51% higher at ₹1,920 on the NSE, while Voltas was trading 6.33% higher at ₹1,355. Symphony shares were trading over 3% higher at ₹972.90 apiece on the NSE. Amber Enterprises was around 7.5% at ₹7,408 on the NSE, and Dixon Technologies (India) was trading around 3.5% higher at ₹16,749.

Johnson Controls-Hitachi Air Conditioning India was trading 1.8% higher at ₹1,753.20, while Epack Durable was trading 4% higher at ₹376.60.

The BSE Consumer Discretionary index was trading at 9,815.38 levels, up 288.76 points, or 3.03% while the BSE Consumer Durables index was trading 3.27% higher at 60,992.86 levels.