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MOSL: CONSUMER-Corporate tax cut – structural benefits for some industry players

CONSUMER: Corporate tax cut – structural benefits for some industry players; Reiterating HUVR, TTAN as top picks, also adding BRIT, CLGT

 

Post the Indian government’s announcement of a reduction in the corporate tax rate, we in this note present our views on the likely earnings impact, the key monitorables and the changes in our stock views.

 

• In our view, GSKCH, UBBL, BRIT, APNT, ITC, PGHH, JUBI, PAG, UNSP, NEST and CLGT (all coming under 33-35% tax bracket on earlier forecasts for FY20-21) will be the biggest beneficiaries of the lower corporate tax rates effective from FY20. All these companies are expected to see an EPS increase in the range of 12%-13% for FY20 and FY21 (keeping other assumptions unchanged).
• Other names likely to benefit are HUVR/PIDI/TTAN (between 29% and 32% tax rates) with EPS upgrade in the range of 6-10%.
• Consumer companies will use either all/most of the tactics like higher promotions, price cuts, higher adspend, increase trade margins and channel incentives to boost top-line growth.
• MNCs are the biggest gainers, in our view. This means that companies like Dabur and GCPL (which do not see material gains from the corporate tax cuts) are likely to be less attractive on a relative basis, particularly if HUVR and CLGT step up promotional efforts in categories like oral care and soaps, respectively. Similarly, companies competing against large unorganized peers will have a significant incremental advantage.