Leveraging on the GST bandwagon
The GST has enabled single tax system which also alleviated a lot of issues faced by the logistics players, thus making the goods movement easy. Moreover, it gives you a very definite taxability structure with humungous amount of clarity.
Renjini Liza Varghese
It is a month since the most awaited single tax system - Goods and Services Tax (GST) was put in place by India by replacing a dozen of existing taxes; the debate is still on what predictably has changed in this period. Even before the GST was launched, the analysts and sectors experts were in agreement to the fact that logistics segment would be reaping the maximum benefits.
‘Mid-Year Emerging Markets Review 2017,’ by Agility says, “The steps taken by the Indian Government will give increased momentum to the already surging Indian Economy and logistics sector. The report predicts that the GST reform in the long-run is expected to increase Indian internal and external trade by 29 percent and 32 percent respectively.”
With GST as single tax, the key barriers like the CST (central sales tax) are removed. (How CST used to work is if a manufacturer is moving his finished product say from Tamil Nadu to Delhi for sales, then CST is applicable. However, if the goods are moved for storage purpose to Delhi, then it is excluded from CST). Tax evasions were very common. With GST all these kinds of concerns are being addressed.
For a lot of commodity driven players including cement and autos, the ‘one nation, one tax’ also alleviates a set of issues that are related to warehousing. With the definite taxability structure in place, it makes receiving of the input tax simpler, wherein for the same there were multiple things to be done earlier. Now there is a humungous amount of clarity. The movements of goods have become far easier in the GST environment.
However, some imposed taxations are inviting ire from the industry. The industry body, PHD Chamber of Commerce and Industry has raised their concern over the imposition of 18 percent GST on international freight. “Why would the government of India want Indian exporters to pay an extra 18 percent GST on freight and make goods non-competitive in international market,” said Vipin Vohra, Co-chairman, Civil Aviation Committee, PHD Chamber.
Mayuresh Joshi, Fund Manager, Angel Broking, said, “In addition to the clarity on taxation and acceleration in freight movements, I feel the government’s push for a dedicated freight corridor, which we have been hearing and talking for past so many years, will be completing in the next few years, also will have a major impact.”
The other factors that will have a sizable effect on the movement of goods are; creating the multi-modal parks (MMLP) or the logistic parks, cool chain store houses or ware houses where there is traction from both domestic as well as international investors. For those goods which are moving from the hinder lands, where there are no dedicated freight corridors available, when these goods enter the main service lanes, at any intersections, there is a need for reasonable storage facilities.
Developing multi-modal logistic transport facilities like inter-linking the airports, ports and the railway stations will be the norm in the next few years. One of the leading companies is developing 12 MMLPs in India. Of which one has become operational in the recent past and five more will be operational in the next couple of months. All these MMLP's are laid out along the dedicated freight corridor.
Also those who are present in the logistics segment, predominantly road, rail segments are able to leverage on their network very effectively now. There are many players; some are in road, some in railway, a few in air cargo and some in shipping who are also in the inland water operators. All will have their distinct advantages as the above mentioned factors play positively for them. No doubt that their network grows in the new scenario, but in a far more structured manner along with the simplicity of taxes.
All these summed up efforts will ensure an effective movement of goods across the country at a pre-defined rate, which is reasonable. Unlike the pre-GST period, this time without multiplicity of taxes that probably removes the onerous burden majority the good providers had to pay earlier.
So what has changed in the last 30 days after the ‘game changer’ structure was implemented? While taking into account the fact that it is still in its nascent stage wherein the initial glitches are being addressed, there were green shoots in some areas. One of such visible change was in the performance of the listed companies’ stock.
Added Joshi, “Post GST the goods movements are faster with lot of time savings. That will improve the performance of the companies in the logistics segment, is the main reason behind the momentum seen in these stocks in the market.”
However, R Shree Shankar, head of research, IL&FS Investmart, was not in agreement for the movement of logistics company scrips purely because of the GST impact. “The markets have moved to all time high and crossed new levels. It moved many of the sectors and stocks up along with it.”
Some of the companies had a real reason to cheer. In the run up to the GST implementation majority of the companies present in the logistics space gained momentum. Examples; stocks of Allcargo Logistics, TCI express, ASIS Logistics, Snowman Logistics etc showed visible variation in the performance. Stocks like Jet Airways, Blue Dart Express, Container Corporation of India (CONCOR) are some of the stocks that displayed gains on July 3, 2017 the day followed the announcement of GST.
There were logistics stocks which were either flat or registered a downward trend after the GST roll out. For example SpiceJet from the aviation segment was one such stock. On June 30, the stock closed at Rs 132.15 and on July 3 closed at Rs 128.7. Other companies like TCI Express GATI, Patel Integrators, ASIS Logistics are such other companies which was down on the following day of GST roll out.
As in the pre-GST times, there are factors that fuels the movement of a stock in the exchanges. These include, the quarter results, fund raising, good and efficient performance clubbed with the overall sector performance etc. Likewise, factors like bad performance, rising debts, major accidents, dip in demand so on and forth has an adverse effect on the performance of stocks. The analysis of the logistics company stocks reveals that more than GST the other deciding factors have major impacts on the scrips. It is for sure to take some more months to reflect the full benefit of the GST on the bottom lines of the companies and on the stocks.
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