The pace of construction in India isn't really frenetic at present, but the rush to buy stocks of flooring tiles, sanitaryware, and ceramics could be so -if the industry were to attract lower taxes.
At first mention, Kajaria Ceramics, Cera Sanitaryware, BSE -1.00 %, HSIL, BSE 0.26 %, and Somany Ceramics BSE 1.31 % do not come across as scrips that would rank high on shopping lists now. However, ahead of the outcome of the GST Council meeting, these stocks are set to gain.
On Thursday, stocks of Kajaria Ceramics, Cera Sanitaryware, HSIL, and Somany Ceramics climbed 3-5 per cent, while the broader benchmarks were marginally up.
The applicable GST rate on tiles and sanitaryware is 28 per cent, and the industry expects it to be revised to 18 per cent. "The association has already made two representations to the government, and we expect it to be lowered to 18 per cent. Taps and faucets are taxed at 18 per cent. Then it makes no sense keeping sanitaryware products at 28 per cent. These are also essential items," said Ram Kabra, president, HSIL.
The 28 per cent rate is neutral for the industry, in line with the earlier tax slab. But the industry was expecting the applicable levy to be lowered to 18 per cent to encourage more unorganised players to pay taxes.
"Tiles and sanitaryware products are not luxury items. Moreover, they are in line with the government's Swachh Bharat Abhiyan and Housing for All programmes," said Atul Sanghvi, executive director, Cera Sanitaryware.
According to him, after the implementation of the single producer levy, there was no activity from small-time players. However, they are back to their old habits of dealing in cash, said Sanghvi.
Between FY10 and FY17, the industry has expanded at high teens. However, the performance has been affected in the past three quarters first due to demonetisation and then due to the GST.
Analysts, though, describe this as temporary . "The government's push to housing and infrastructure development, the ongoing consolidation in the tiles industry after GST, increasing urbanisation and improvement in discretionary spends would be key drivers of growth," Archana Gude, an analyst with Religare, wrote in a recent report. Gude believes that stocks such as Kajaria Ceramics and BSE 3.32 % could climb 30 per cent.
Kajaria Ceramics and Cera Sanitaryware have reported the September quarter results. Earnings at the two companies rose 0.6 per cent and 3.6 per cent, respectively, year-on-year.
Every quarter from here will be better, said Sanghvi of Cera. "The industry will benefit as more players will move to the organized sector if the rates are low," Said Kabra of HSIL.
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