Synopsis:
Apparel stocks saw a nice uptick as hopes grew for a GST cut, with the government mulling over a flat 5 percent rate on all clothing and reducing the tax on footwear priced under Rs 1,000 from 12 percent to 5 percent.
Stocks such as Trent, Vishal Mega Mart, Page Industries, etc, are in focus mainly because of their exposure to their apparel business. In this article, we will discuss more about this.
Right now, clothing that costs less than Rs 1,000 is hit with a 5 percent GST, while anything above gets taxed at 12 percent. The new proposal is looking to streamline this by applying a flat 5 percent GST rate across all apparel.
For footwear, the current 12 percent GST on items under Rs 1,000 might drop to 5 percent, but the higher 18 percent rate on products over Rs 1,000 is expected to stay the same.
Analysts believe that if these changes go through, they could significantly alter how consumers spend in the fashion and footwear markets. Lower GST on more affordable options could drive up demand, and a uniform rate might appeal to budget-conscious shoppers. Goldman Sachs notes that the effects will vary among listed retail companies, depending on their product offerings and pricing strategies.
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So which stocks might benefit from it?
Trent: Over 80 percent of Trent’s revenue comes from its Westside and Zudio division, though it is to be noted that the newly launched division (Zudio Beauty) also contributed to Zudio’s sales.
Page Industries: For Page Industries, almost 60 percent of their sales come from innerwear that’s priced under Rs 1,000, which already benefits from a lower GST rate of 5 percent.
The real game-changer would be in their outerwear segment, which makes up about 40 percent of their sales and is currently taxed at 12 percent. If the proposed changes go through, this outerwear line would see a drop to a 5 percent GST rate, which would be a significant advantage for the company.
Bata: Bata gets around 40 percent of its sales from shoes that cost less than Rs 1,000, so a drop in the GST rate to 5 percent would help it boost its sales.
Metro Brand: Metro Brands makes over 90 percent of its revenue from footwear priced above Rs 1,000, where the GST rate remains at 18 percent. This means they won’t see much benefit from the proposed changes.
Several other companies, such as Vishal Mega Mart, Vedant Fashions, Aditya Birla Fashion, V2 Retail, etc, are also expected to gain significant benefits from this rate cut as these companies derive a major chunk of their revenue from their apparel segment.
Written by Satyajeet Mukherjee
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