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Budget Impact - FMCG and Consumer durables

Jul 10, 2014

The Union Budget 2014-15 has announced a number of sops for the FMCG and consumer durable sector. The soap sector has been the major beneficiary with customs duty reduction on a number of inputs. Fatty acids, palm oil derivatives and other industrial grade crude oils used in soap manufacture have been exempted from imposition of 7.5% duty earlier. Additionally, the duty on crude glycerine has been cut from 12.5% to 7.5%. This is likely to benefit soap manufacturing companies such as Hindustan Unilever and Godrej Consumer Products.

Incentive for capex

To provide incentives for processing capacity expansion, the government has reduced the excise duty on food processing and packaging machinery from 10% to 6%. This is likely to benefit food & beverages sector that are in the process of increasing scale. However, the tobacco companies have been penalized on growing health concerns.

Higher tax on tobacco, aerated drinks

The excise duty on cigarettes and cigars has been raised in the range of 11% to 72%. While cigarette major ITC is likely to pass on the duty hike in the form of price increases, smaller players such as Godfrey Phillips and VST Industries are likely to be hit in the short run. Additionally, the excise duty on other forms of tobacco such as pan masala, unmanufactured tobacco, gutkha and chewing tobacoo has also been raised. Even aerated waters containing added sugars have been levied with an additional duty of 5% making them expensive. This is likely to make packaged juices more attractively priced, spurring their sales. Thus Dabur India can benefit indirectly from this cost benefit.

Tax relief to footwear, television manufacturers

The footwear industry saw some relief. The excise duty on foot wear retailed at a price of Rs 500 to Rs 1000 per pair has been halved to 6%. This is likely to provide some benefit to Bata India in the economy segment. In consumer durables, the television industry had some reason to cheer. The customs duty on colour pictures tube for Cathode Ray Television has been waived off. This is likely to benefit small companies as most of the larger companies have exited from this segment. Additionally, the import duty on LCD and LED television panels below 19 inches has been slashed from 10% to zero. This is likely to make small screen LCD and LED television cheaper and benefit companies such as Videocon Industries and Mirc Electronics.

Overall, the Budget was a positive for the FMCG and consumer durable sector, which is also likely to be benefit from the thrust on rural employment and consumption trends in the longer term.

Madhu Gupta

Madhu Gupta (Research Analyst), ValuePro 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.

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