The FMCG Industry
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Budget Measures
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Import duty on crude edible oil increased from current 35-55% to 75%.
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Import duty on refined edible oils increased to 85% from 45-65% currently.
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Customs duty hiked from 35% to 70% for import of copra, coconut, tea and coffee.
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Soda ash import duty reduced from 35% to 20%.
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Vanaspati manufacturers would be charged a duty of 55%, up from 25%, on imports of crude palm oil
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The development allowance available for the tea industry has been raised to 40% from 20%. This additional allowance would be used only for replantation, rejuvenation and modernisation of tea plantations.
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Excise duty on cosmetics and toiletries reduced to 16% from 32% earlier. |
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Food-processing industry got a special mention this year. All food preparations based on fruits and vegetables completely exempt from excise duty. This will include a very wide range of products of common use like pickles, sauces, ketchup and juices, etc.
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10% surcharge on customs duty removed.
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Budget Impact
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Companies like HLL, Tata Tea, Marico benefit because of the hike in customs duty on tea and edible oils.
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Tata Tea and HLL will also benefit as a result of increase in the tea development allowance.
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Detergent companies which import soda ash for raw material will benefit. However, companies like Nirma, which have an in-house raw material sourcing plant, will not benefit much.
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Nestle will not be impacted by the hike in import duties in coffee, as Nestle imports coffee beans and not packaged coffee. Infact, it will have an advantage over any company importing packaged coffee in terms of costs.
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Britannia is one company, which will see some negative effect. Excise duty on small biscuit packs below Rs 5 and packs below 100 grams has been increased to 16% from 8% earlier. Tiger, Britannia's low end largest selling biscuit brand accounts for around 20% of its revenues.
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As a result of redcution of excise duty on cosmetics and toiletries, HLL, Colgate and Godrej Soaps will benefit.
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As a result of removal of excise duty on some processed foods, HLL, Nestle and Marico will again benefit given the fact that sauces, juices and other some items form a significant part of their processed food business.
Gains through reduction in dividend tax
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Company |
No. of
shares (m) |
Dividend
per share |
Tax savings
(Rs m) |
% addition to
net profit |
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HLL |
2,201 |
3.5 |
924 |
7.0% |
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Cadbury |
36 |
5.0 |
21 |
4.1% |
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Nestle |
96 |
9.0 |
104 |
7.6% |
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SBCH |
45 |
6.0 |
33 |
2.9% |
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Colgate |
136 |
3.0 |
49 |
8.6% |
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P&G |
22 |
15.0 |
39 |
4.3% |
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Reckitt |
33 |
3.8 |
15 |
5.4% |
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Tata Tea |
56 |
9.0 |
61 |
5.4% |
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Industry wish list
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In an interview with equitymaster.com, Mr. Adi Godrej, Chairman of the Godrej Group, had suggested that India should move to a VAT (value added tax) system where there will be one tax and not 10 different taxes, and this should be moderate. He further added, “High tax rates lead to lower revenues. The government has consistently found that when it cut income tax rates it has collected more income tax. So, it is a false belief that high tax rates lead to higher realisation. Currently in India, especially in the FMCG sector, tax rates are ridiculously high. For many FMCG products, excise can be as high has 30%, the sales tax can be 15% to 18% and the octroi can vary from 4% to 8%, and if you add all this together it is ridiculously high. So we must move to a reasonable VAT tax regime. That I think is the main reform required for the FMCG sector.”
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Complete de-reservation of consumer products sector. If it happens, it will enable Indian companies to undertake manufacturing on a mass scale resulting in operational and quality efficiencies.
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Quality check on imported FMCG products. This would go a long way in filtering out import of sub-quality and discarded products, benefiting both the manufacturers and the consumers.
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Effective enforcement of copyright laws. This will help in checking the menace of duplicate products and help the brand owners and the consumers both. The government on the other hand, will realise more duties.
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Key Positives |
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The penetration in rural areas still has a lot of potential. Companies are introducing new products and the urban areas seem excited.
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According to estimates, only about 5% of the total food production is consumed in processed form (US$ 75 bn). This speaks for itself, highlighting the scope for growth.
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As growth has shown signs of slackening companies are increasingly focusing on key products and brands, cost efficiencies and rural markets.
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Key Negatives |
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Bad monsoons have led to a low agricultural production leading to a slowdown in the FMCG demand. The topline growth of many FMCG majors has thus, declined. The recent earthquake in Gujarat will contribute to the slowdown in FMCG demand.
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Year 2000 saw a rise in excise duties by the government. The FMCG companies faced resistance by consumers when the hike was passed on to them. Slowdown in the industrial production also affected the consumer spending. Hence, some products witnessed a consumer down trading.
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