Credit Suisse has maintained an outperform rating on Arvind, with a target price of Rs 450. It sees the disruption from GST as temporary and short term.
The research firm says the GST outcome is good with five per cent tax on apparels costing less than Rs 1000 and 12 per cent on others. Its average ticket size of about Rs 700 to Rs 800 would attract five per cent, lower than the current 10 to 10.5 per cent of indirect taxes.
The branded business would likely see 150 to 200 basis point additional taxes, which is small enough to be passed on to consumers.
Credit Suisse feels the company’s first quarter FY18 and second quarter will be impacted, especially on margins, as there will be some transition pain. It says this impact will continue until the inventory gets cleared and this process could take three or four months. Given that margins are seasonally extremely low in the June quarter for brands and the retail business, the inventory impact could wipe out most of the margins for the quarter.
Due to destocking in channels, there would also be some revenue impact in the first quarter. The second quarter could witness restocking but the research house believes that the usual sales season was advanced to June this year.