Consumer Durables Sector Update : GST rate cuts a booster dose by JM Financial Services Ltd
GST rate cuts a booster dose
The GST council’s approval for cut in GST rates from 28% to 18% for air-conditioners and televisions, amongst other consumer durables is a welcome reform. These new rates are expected to be effective from 22nd Sep’25. We expect this to result in price cuts of 7-8% across the board, and boost air-conditioner volume growth by 9-10%, assuming the benefit is passed onto the end-customer. However, it is important to note that, in anticipation of lower prices, customers are likely to have deferred purchases through August and most of September. Nonetheless, starting last week of September and through October, we expect (1) festive cheer, (Navratri starting from 22nd Sep) and impact of the second summer; (2) customers who deferred purchases finally buying; and (3) GST cut-led price elasticity to play out. We believe that if this does materialise on expected lines, the industry could be back to normal inventory levels by mid/end-October, which, in turn, should set the ball rolling for brands and manufacturers again.
* The much awaited GST cut is here; ACs, TVs, dishwashers and LED lights key gainers: The GST council, in its meeting on 3 rd Sep, approved a simplified dual GST slab structure of 5% and 18%, and removed the 12% and 28% slabs. This revised structure is expected to be effective from 22nd Sep’25. On the back of this, within the consumer durables space, air-conditioners, televisions of 32 inches+, and dishwashers are likely to enjoy lower GST rates of 18%, vs. 28% earlier, while LED lights, fixtures, and energy efficient lighting will now fall within the 5% slab vs. 12% earlier.
* Our take on the impact of GST cuts: Our calculations suggest (refer Exhibits 5 and 6) that air-conditioners and televisions (>32 inches) can see price cuts to the tune of 7-8% across the board. Further, our discussions with industry participants suggest an average price elasticity of 1.2x for ACs, which indicates that an 8% price cut can translate into additional volume growth of 9-10%, assuming the benefit is passed on to the end customer. Further, we believe that brands are highly likely to pass on the benefit, given fierce competition within the space, and also the government’s stance on the same. If this plays out, our calculations suggest an upward revision of 2-5% in FY27/28E EPS estimates for AC brands. The one risk that we see here is these price cuts replacing festive discounts, and restricting the benefit to end-customers.
* This can aid normalisation of the AC inventory build-up by October: Given inventory build-up owing to weak summers, we understand that brands and the channel put together held ~4mn units. This included brands and the channel holding ~1mn units of incremental inventory each, over and above normal levels of ~1mn units each (equivalent to ~1.5 months). Generally, the industry records sales of 650-750k units in the offseason. However, August was below average, given pleasant temperatures, and expected GST-cut led purchase deferment. Further, we expect a similar story through most of September as well given the new rates will be applicable w.e.f. 22nd Sep’25. However, in October, we expect (1) festive cheer, and impact of the second summer; (2) customers who deferred purchases finally buying; and (3) GST cut-led price elasticity to play out. Our calculations suggest that if this plays out, industry should be back to normal inventory levels by end-October, which will set the ball rolling for brands and manufacturers again.
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