As Crucial GST Council Meet Nears, Bet High On Logistics Sector
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By the time you read this DSIJ Special in the latest edition of your favourite investment fortnightly, chief ministers of several states across the country will be breaking their heads along with their finance ministers to come up with further suggestions before the final meeting of the GST Council, scheduled to kick off on November 3. The earlier one held in the national capital during second half of October did not lead to a consensus thus calling for the early November meeting to be chaired by union Finance Minister, Arun Jaitley even as his government is desperate to implement the new set of laws by end of this fiscal. While the meeting of November 3 may pave the way for the final GST rate which may be a number within the range of 16-24 per cent, stocks related logistics and transportation sector have started showing upward trend on a consistent basis. To ensure our reader-investors continue to stay ahead in the race when it comes to taking the wise call on choosing the right sectors, right stocks, here we describe the existing scenario and also identify a set of two stocks which have been witnessing interesting movements since GST turned a reality after lots of delays.Globally, logistics is one of the most dynamic business functions and indeed can prove to be the core competence of any company which manages to stay ahead of the curve. Logistics providers are increasingly being awarded dedicated e-commerce warehousing and distribution contracts. In global logistics industry, a key trend is the provision of value-added services and bespoke solutions.
The Indian logistics industry even though at nascent stage is in an exciting growth phase with the catching up it has to do to be at par with the global logistics industry. With expectations to grow in higher teen percentage, the logistics industry in India is indeed one of the fastest growing industry in the country that also happens to be the fastest growing nation in the world, in terms of GDP.
Indian logistics industry which is primarily categorised into four segments comprising transportation, warehousing, freight forwarding and value-added logistics is expected to grow steadfastly led by e-commerce penetration, evolving consumption story in India and most specifically proposed GST implementation aptly aided by government initiatives like "Make in India", 100 per cent FDI in warehouses, National Integrated Logistic Policy etc.
The logistics industry in India is also highly fragmented with approximately 50 per cent of the market share lying with the unorganised players. The growth feasibility of the Indian logistics industry is, however, being challenged by the inherent multiple complexities that includes complextax structure which leads to higher logistic costs and here is where GST could be the game changer. GST bill once implemented is expected to be a boon for a large nation of consumers like India.
Various studies show that the logistics costs can be reduced by as high as 20 per cent from the existing levels. However GST alone may not be suffice to bring down the logistics cost as adequate logistics infrastructure will be required to bring down the costs for the industry. In USA the logistics cost is around 8-10 per cent of GDP whereas the logistics cost is India is around 14-16 per cent indicating inefficiencies in the logistics infrastructure.
The GST regime is extremely important for India to sustain economic growth rate close to 8-10 per cent on annual basis. GST implementation is all set to overhaul the present indirect tax regime which is not only complex and confusing but also inefficient and opaque.
However it is important that the new tax system i.e GST should not be multi layered as has been feared. It will only be a case of old wine in new package if the multiple rate GST structure is implemented.
Deb Mukherjee
CEO, Wisdom Capital
Government of India (GOI) is committed to put in place a centralised and comprehensive taxation mechanism, goods and services tax, by April 2017.
Its impact will be felt in taxation structure, incidence, computation, payment, compliance, and reporting, influencing all segments of Indian economic life. With particular emphasis on supply chain, a common technology aggregated platform will aim to streamline the infrastructural complexities linked to taxation. As we see it, tax rationalisation, compliance and procedural simplification and, technological implementation are the three pillars on which GST stands. The increased efficiencies will lead to an improved economic health; thus, encouraging an increasing number of people to engage in the India growth story. For instance, not only will the souring, distribution, pricing of the goods will be positively impacted but also the value creation will be facilitated with improved cash flows and transaction management. However, there are linked challenges such as adaptability, technology constraints, and effective compliance. As an evolutionary process, these will only be ironed out once GOI puts the mechanism in place. The financial markets are also taking a cue from the GST construct and reacting accordingly.
So too are the investors overseas who are watching with the developing situation with great attentiveness. Few of the FIIs have already taken positions in anticipation, believing into the GOI's stand on the GST. If the GOI is able to deliver the GST claim, financial markets will be the primary port where celebrations, in the form of shareholder wealth creation, will be heard in the first place.
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Our Recommendations
Looking at the capability and strong will of the current reformist government, an effective resolution of the issues in GST, will in high probability present significant business opportunities to the logistics players in India.
Here we bring in the case of two logistics and transportation majors where investors can park their money considering the GST related developments though the final rate is awaited from the November 3 meeting but once the rate is finalised and shared, chances of these stocks along others witnessing further raise can not be ruled out
BLUE DART
BSE CODE : 526612 FV: Rs.10
CMP (As on Oct.26,2016) : 5105
Blue Dart Express (BDE) continues to be a market leader in the organised air express market with an approximate 46 per cent market share. The average growth rate expected for the express industry is 17 -18 per cent and the market size is expected to reach Rs.27000 crore by FY18.
Continuous increase in internet penetration and growing usage of smart phones and tablets is key for the BDE. E-tailing I catching up big time in India and is expected to maintain a strong growth momentum of approximately 50 per cent running upto FY18.
Changing buying patterns and expected increased e-commerce activities augurs well for BDE business in the B2C segment. With improved consumption across nation the B2B activities may also pick up and BDE will be one of the biggest beneficiaries.
Strong market share and excellent operating leverage experienced by BDE makes it an investible asset for long term as one can expect the company to post sharp growth in earnings and profitability
TIGER LOGISTICS
BSE CODE : 536264 FV: Rs.10
CMP (As on Oct.26,2016) : 283
Tiger logistics is a leading supply-chain service (3rd party logistics — 3PL) logistic company in India. Tiger logistics has custom house agenta' s license and a Multimodal Transport Operator' s (MTO) license to service its client's needs.
The GST implementation is expected to rationalise the warehousing and this may lead to increased demand for 3PL companies like Tiger logistics to help manage the corporate's overall distribution and supply chains.
The company while maintaining service quality is able to grow owing to its business strategy of
1.Entering new geographies
2.Operational efficiencies
3.Ability to leverage market skills and relationship
4.Focus on consistently meeting quality standards
GST implementation and surge in e-commerce volume expected in coming few years are the key triggers for this particular logistics counter.