Goods and Services Tax (GST) which is likely to be implemented from April 1, 2017 may put pressure on wind, solar, turbine generator manufacturers. According to KR Choksey Shares and Securities, the indirect tax bill is negative for companies like Suzlon and Inox Wind as it will put pressure on developer margins and internal rate of return (IRR) could eventually force a decline in prices and realisations, up to 10 to 13 per cent as excise duty exemption and concessional rate of duty would not be applicable in GST regime.
The brokerage house in a research note said, “The service tax on operations and maintenance (O&M) services would also lead to put pressure on margins. However, if components are included in the exemption list, the impact of GST will be nullified.”
On Friday, shares of Suzlon were trading 4.91 per cent up at Rs 17.10 in the morning trade (at 11.30 am). Inox Wind was trading 1.78 per cent up at Rs 219.60 at the same time. KR Choksey has a target price of Rs 21 and Rs 390 for Suzlon and Inox Leisure, respectively. The brokerage house further expects wind-turbine-generator manufacturers to cut prices by around 10 per cent to maintain developer IRRs. KR Choksey believes clearing the passage for Electricity act will lead to boost demand for renewables and compensate revenue losses for developers.
The 122nd Constitutional Amendment Bill was passed by the Lok Sabha on May 6, 2015 and by the Rajya Sabha on August 3, 2016. Once it is passed by 50 per cent of the states, that will enable the ushering in of the GST.