The Aditya Birla Fashion and Retail Ltd (ABFRL) stock hit a new 52-week high last week. The stock has gained 17% in the past two-and-a-half months as the company demonstrated better profitability in its premium brands business and laid down a growth trajectory for the value fashion business—Pantaloons.
The gains were further accentuated by the government’s decision to charge goods and service tax (GST) of 5% for apparel priced below Rs1,000 and 12% beyond that.
The rates are not as bad as feared. This helps ABFRL in two ways. One, as Ambit Capital Pvt. Ltd calculations show, net of input tax credit, the proposed tax rate works out to be lower than the existing tax rate for ABFRL. The low rate will aid the value fashion business segment, Pantaloons.
The second factor is the transformation in the value fashion business. As in the case of several other industries, GST is expected to help strengthen companies in the formal sector such as ABFRL.
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