Mar 15, 2013|
Will FMCG benefit from the Budget?
The fortune of the FMCG industry is linked to incomes of consumers. The working population has been reeling under slowdown and inflation. But the Union Budget 2013 did little to cheer them. Save for a minor tax credit of Rs 2,000 on annual earnings below Rs 5 lakhs, no further benefits were given to raise their income. Even the increased funds for rural employment will provide a push to rural consumption only in the long run.
The FMCG industry awaited the much needed Goods and Services Tax (GST) to boost their sales. But its implementation was deferred again in the absence of agreement among State Governments and lack of required amendments.
However, the Union Budget gave tiny sops to the sector in the form of service tax relief. The government removed the service tax of 12.3 % on transport of essential food items like tea, coffee, flour, sugar, jaggery, salt and edible oil. This will reduce transportation costs of FMCG companies mainly in these segments. But higher fuel cost from diesel price hikes is likely to reduce their tax savings.
|Data Source: Company|
The Union Budget also withdrew service tax on alcohol based deodorants, soaps and sprays. Earlier, these products paid service tax of 12.3% on processing charges apart from excise duty. The service tax relief is likely to benefit companies like Hindustan Unilever, Marico and Godrej Consumer Products.
There was also a change in the calculation of excise duty for Ayurvedic medicines. Ayurvedic medicines were earlier taxed at an excise duty of 2%. After the change, they will be taxed on the basis of Maximum Retail Price (MRP) with 35% reduction on MRP. This is likely to result in a marginal rise of 2%-3% in tax for Dabur and Emami.
The Union Budget 2013 offered minor benefits to the FMCG industry. However, its impact is likely to be offset by high fuel costs and food inflation that has been hovering in double-digits. The income tax benefits have not been substantial to stem the slowdown in the sales of discretionary goods. Therefore, going ahead we expect FMCG companies trying hard to maintain their earnings momentum.
||Madhu Gupta (Research Analyst), Managing Editor, ResearchPro has a post graduate degree in both physics and finance. Having worked with India's leading economic research agency, she has a natural flair for numbers and analytics. She brings with her a near-decade long rich experience in the field of finance. A firm believer of the principles of value investing, she looks for robust businesses with durable competitive advantages. Madhu contributes towards our small cap service Hidden Treasure.
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