Skip to main content

GST woes for branded apparel persist

GST woes for branded apparel persist
Branded apparel manufacturers and retailers are yet to overcome the impact of the new indirect tax regime.

The textile chain was in limbo after the goods and services tax (GST) was introduced because of the cascading tax burden and now consumer sentiment has been impacted.Falling exports have made matters worse.The September quarter results of big players have reflected this.

Branded apparel products that cost more than Rs 1,000 attract 12 per cent and those below this 5 per cent.As a result, consumers are shifting towards lowpriced apparel.Established players have to comply with the new tax mechanism as they don´t deal in cash.

A part from that, branded apparel firms had to purchase from their bulk consumers ahead of the date of the GST introduction, July 1, to avoid the high tax levy. Asaresult, they have some additional stocks.

Rahul Mehta, president, Clothing Manufacturers Association of India, said, “Weak consumer sentiment, sharply falling exports, and liquidity shortage are likely to result in stress persisting forafew months more.” He feels FY18 wasalost year for them.

Exports fell 41 per cent in October, continuing the trend seen after the GST because of the withdrawal of duty drawback benefits, and the little depreciation of the rupee has not helped.Diwali and the festive season, according to Mehta, have also not helped much.

The impact was seen on the financial results in the July-September quarter.Both the turnover and net profits of branded apparel firms remained under pressure.
“Owing to higher GST rates, branded apparel and retail companies are expected to report lower than usual revenue growth inaseasonally strong quarter while margins for branded apparel companies are likely to be impacted by onetime costs on inventory due to the GST.

We recommend investing in the space withathreefour year horizon as companies attain scale by expanding the distribution network and improve margins, cash flows, and return ratios,” said Krupal Maniar, an analyst with ICICI Securities.

For example, Aditya Birla Fashion &Retail (ABFRL) delivered another weak quarter, impacted by the GST´s rollout, transition issues, and weak consumer sentiment, especially in July.

Although the GST is expected to beamediumterm positive, endofseason sales in June and consequent drop in footfalls in July, coupled withaonetime GSTrelated compensation of ~26 crore to the channel, led toaloss in the second quarter.But there was a recovery in September because of strong festive season sales.

Revenue was much lower than expectations at Rs 1,800 crore, down 4 per cent yearonyear, led bya 7 per cent decline in lifestyle brands,amuted 2 per cent growth rate in pantaloons, and weak growth in fast fashion.This revenue shortfall led to an Ebitda (earnings before interest, taxation, depreciation, and amortisation) margin decline of 220 basis points to 6.6 per cent, excluding the GST writeoff. “Pantaloons witnessedamarginal decline in margins.

Lower growth expectations, given multiple headwinds, and ongoing capex plans that are delaying free cash generation are key reasons foradownward rating revision from ´hold´ now from ´buy´,” said Himanshu Nayyar, Analyst, Systematix Shares &Stocks (I) .Sanjay Lalbhai, chairman and managing director at textile and apparel company Arvind, said: “Whenever there is early Diwali, you tend to lose out in the north.

If you compare Diwali to Diwali, the numbers are subdued.But organised players should do well now.Unorganised players who avoid taxes will face challenges.There was a temporary slowdown but things became normal quickly.”
The Business Standard, New Delhi, 22th November 217

Comments

Popular posts from this blog

Shrinking footprints of foreign banks in India

Shrinking footprints of foreign banks in India Foreign banks are increasingly shrinking their presence in India and are also becoming more conservative than private and public sector counterparts. While many of them have sold some of their businesses in India as part of their global strategy, some are trying to keep their core expertise intact. Others are branching out to newer areas to continue business momentum.For example, HSBC and Barclays Bank in India have got out of the retail business, whereas corporate-focused Standard Chartered Bank is now trying to increase its focus on retail “Building a retail franchise is a huge exercise and takes a long time. You cannot afford to lose it,” said Shashank Joshi, Bank of Tokyo-Mitsubishi UFJ’s India head.According to the Reserve Bank of India (RBI) data, foreign banks’ combined loan book shrunk nearly 10 per cent from Rs 3.78 trillion in fiscal 2015-16 to Rs 3.42 trillion last financial year. The banking industry, which includes foreign banks…

GST Refund of Rs 20,000 Cr Pending: Exporters’ Body

GST Refund of Rs  20,000 Cr Pending: Exporters’ Body Refund of over Rs 20,000 crore on account of Goods and Services Tax (GST) is pending with the government with more than half the amount stuck as input tax credit, Federation of Indian Export Organisations said on Tuesday. While claims over Rs7,000 crore were cleared in March, the amount was Rs 1,000 crore in April.However, after exporters’ request, the GST council and tax department are organizing a second phase of Special Refund Fortnight starting May 31, which will enable exporters to draw their refunds at a speedy pace. Many exporters have been unable to file the refund of input tax credit due to technical glitches, exports and claim happened in different months. The major challenge lies on ITC refund especially because the process is partly electronic and partly manual which is cumbersome and add to the transaction cost, the exporters’ body said. On IGST, refunds are getting delayed due to airline and shipping companies not submitt…

RBI rushes in to prop up falling rupee

RBI rushes in to prop up falling rupee India’s central bank reportedly intervened in the currency markets on Monday to prevent a further slide in the local unit, which breached the 67 mark to a dollar for the first time in 15 months amid a widening trade gap and runaway import bills fuelled by high crude-oil prices. Some state-owned banks were seen selling dollars aggressively, interventions that market dealers attributed to the central bank’s strategy to stem the decline of the Indian rupee against the US currency. The rupee is the worst performing among a dozen Asian monetary units in the past three months. It lost 4.25 per cent to the dollar during the period, show data from Bloomberg. On Monday, the Reserve Bank of India (RBI) is said to have sold about Rs 800 million collectively on the spot and exchange traded futures markets, dealers said. An email sent to RBI remained unanswered until the publication of this report. The currency market has seen such a strong central bank interven…