25 Jun 2017 13:43 IST

Consumer durables: Margins may expand

Post July 1, prices of consumer durables may not rise sharply

White goods, including refrigerators, air-conditioners and washing machines, will be taxed at 28 per cent under GST. Currently, the rate is about 27 per cent (could be higher for States that charge VAT of over 13.5 per cent).

So, post July 1, prices of consumer durables may not rise sharply.

Manufacturers may only see benefit, as input tax credit will reduce their total tax outgo. They can take credit for tax paid on inputs. There is full credit available for service tax paid on advertisements.

Hence, over the next one year, margins for companies such as Whirlpool of India, and Crompton Greaves Consumer Electricals may expand. Sale of white goods at a discount before the roll-out can impact margins in the June quarter, but the impact on FY18 earnings is unlikely to be material.

Players in the organised space in kitchen appliances may see market share go up as the price difference between branded and unbranded items reduces. This is because, one, there will be more companies who come under tax net (GST is applicable to companies where turnover is over ₹20 lakh, under the current regime the threshold is ₹1.5 crore) and two, any retailer who bills his customer will want to take input credit and insist that his supplier too pays his share of tax.

TTK Prestige, pays about 12 per cent on indirect taxes for pressure cookers and under GST too, it is at 12 per cent. It is in mixer-grinders that the company will see impact. Currently, on mixer-grinders, the company pays tax of only about 14 per cent (unit is in excise free zone); under GST, this is set to rise to 28 per cent.

Cable makers, including V-Guard Industries and Havells, could be impacted as the indirect tax rises from about 18 per cent to 28 per cent. But, given that they will claim input tax credit, they will not suffer much. But the end-consumers — who would be home buyers and builders — will see immediate price increase.

In the cables market too, a good share (about 40 per cent) is with unorganised players. But, given that the tax rate has gone up under GST, more players may look to evade taxes now than earlier.

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