Reductions in the GST structure will make clothes, shoes, and electronics cheaper, leading to an expected increase in consumption. Motilal Oswal has given a BUY rating on Amber Enterprises and Trent. According to the report, the target price for Amber has been set at ₹9,000 and for Trent at ₹6,400, indicating a potential upside of approximately 20-21% in both stocks.
BUY Rating: The new tax structure, set to be implemented from September 22 by the GST Council, is expected to significantly benefit the retail and consumer electronics sectors. The tax on footwear and apparel has now been reduced to 5%, while the tax on electronics has been cut from 28% to 18%. In its report, Motilal Oswal stated that this will boost consumption and strengthen company sales. Amber Enterprises and Trent, in particular, are likely to benefit directly. The brokerage house has issued a BUY rating on both these stocks, estimating an upside of over 20%.
Increased Demand for Clothes and Shoes
According to the Motilal Oswal report, the impact will be directly felt in the apparel and footwear segments. Previously, shoes up to ₹2500 attracted a 12% tax, which has now been reduced to just 5%. Similarly, apparel priced between ₹1000 and ₹2500 now falls under the 5% tax slab. This will primarily benefit the mid-premium and mass market segments. The report suggests that branded retailers like Trent and Zudio will see a strengthening of sales and an improvement in their competitive positioning.
Relief for the Electronics Sector
The consumer electronics sector is also set to receive significant relief from this tax reduction. Previously, TVs, air conditioners, and other household electronic goods were subject to a 28% tax. This has now been reduced to 18%. Consequently, the prices of these products will decrease, leading to increased consumer purchases. While there might be some initial sluggishness at the start of the festive season, demand is expected to surge thereafter.
Everyday Items Will Become Cheaper
Taxes have also been reduced on essential and everyday items. Many goods will now attract either 5% or zero tax. This is expected to boost the consumption of branded products. This change will prove to be a relief for the common consumer and will also increase sales for companies.
However, the report also mentions some challenges. Rubber soles, synthetic leather, and man-made fibers used in the manufacturing of shoes still attract taxes ranging from 12% to 18%. This is increasing the cost for companies and putting pressure on their margins. The government has acknowledged this issue, but no significant solution has emerged so far.
Focus on Amber and Trent Companies
In its report, Motilal Oswal has identified two major companies as promising investment opportunities. The first company is Amber Enterprises, which supplies air conditioners and their components. With the tax reduction on ACs, its demand is expected to rise. According to the report, the target price for the company has been set at ₹9000. The current price is approximately ₹7466, suggesting a potential upside of about 21% in the stock.
The second company is Trent. The direct benefit of reduced taxes on apparel and footwear is expected to accrue to Trent. The company's branded retail chains are already b in the mid-price market. This tax cut could further accelerate its sales. The report sets Trent's target price at ₹6400. The current price is ₹5313, indicating a potential upside of around 20%.
