FMCG smiles: Colgate biggest GST recipient; Patanjali and Dabur could lower their rates, other neutrals

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Highlights

  • Colgate will become the “biggest beneficiary” of the GST with tax rates dropping from 28% to 18% on toothpaste.
  • Hair oil will get cheaper as it drops to 18% of the range; however, companies may not benefit from it.
  • A decision on the additional tax on beverages is awaited by the GST Council to access the price of mineral water.

Preparing the country for its biggest tax reform – the Goods and Services Tax (GST) to be implemented from July 1, the GST Council decided rates for the majority of fast-moving consumer goods ( FMCG).

While some of the FMCG companies will be clear winners in the biggest tax review, others may reduce product prices to match prices; However, this will hurt profits, Kotak Security analysts said on Friday.

The price of toothpaste is expected to become cheaper, as it is currently billed at a tax rate of 22-24% and will be reduced to less than 18%.

Speaking of the impact of the GST on the business, analysts said, “Colgate – the biggest beneficiary – especially as it pays 28% – so the benefit is direct.”

However, players like Dabur and Patanjali, having Ayurvedic products are currently not taxed. Kotak analysts added that the GST might be a “neutral” scenario for them.

“Dabur, Patanjali only pay VAT, no excise, so it’s a neutral scenario for them given that they get excise refund under the GST regime (negative if that doesn’t happen) . So while Colgate can cut prices without affecting its profit pool, Dabur and Patanjali can match the cuts, but it will affect their profits, ”Kotak Securities said.

Soaps are another personal care product that is expected to get cheaper as it is currently subject to a 28% tax rate and will be brought back below the 18% GST bracket.

India’s consumer goods major Hindustan Unilever (HUL), analysts said, would benefit from its sale of toothpaste and soaps which account for nearly 25% of its revenue.

Additionally, the report said, “It does benefit sauces and soups a bit. The tea and coffee portfolio appears to be GST neutral for HUL.

“Many important inputs to the food processing industry like jaggery, grains and milk have been totally exempt from the GST. On the other hand, products like sugar, tea, coffee and oil At the same time, the tax bracket on toiletries like hair oil, toothpaste and soaps has been maintained at 18%, ”said Vaibhav Agrawal, head of research and ARQ.

Godrej Consumer Products Ltd (GCPL), according to the report, would benefit from the soap side which accounts for 15% of consolidated revenue and 30% of national revenue.

“However, GCPL also operates from tax-exempt areas; so it could be neutral for GCPL, ”analysts said.

Hair oil will become cheaper as it drops from 10% of the current 28% tax rate to 18% under GST. However, companies selling this product might not benefit from it, analysts said.

“While the effective rate of hair oils has been reduced to 18% (compared to 26-28% currently), these players (Dabur / Marico / BJCOR / Emami) might not benefit because most of them operate from exempt areas, ie they don’t pay excise, only VAT, so it’s a neutral scenario in the case of hair oil players, ”Kotak said.

Also read: A Complete Guide to Products Getting Cheaper or Expensive From July 1

In a conversation with Harsh Mariwalla, president of Marico, who said that in the case of edible oil products the company is famous for, they are taking a neutral stance.

Edible oil which is currently taxed between 3 and 9% will be reduced to 5% under the GST.

“You have to see if the GST benefits more unorganized trade or tax-exempt trade, because that will fall under the GST and that is a bigger benefit to me than the rates per se,” Harsh Mariwala said, president of Marico.

Saugata Gupta, Managing Director and CEO of Marico Limited said, “We understand that the GST rate structure is extremely positive, encouraging and bodes well for the industry. It is anti-inflationary in nature and will help stimulate consumption as well as the economy in the long run. growth.”

Pidilite is another consumer goods company that would benefit from 18% reduced taxation under the GTS, according to the report, with current tax rates standing at 26-28%.

“We note that adhesives contribute 40-45% to Pidilite’s national revenue (including Fevicol, its variants, Fevikwik, Fevicol glue drops and Fevicryl; however, the contribution of packs under 1 kg will be less)” , analysts said.

In addition, the report added that sweets, corn flakes, sauces and soups were to be taxed at 18% versus around 26-28% and namkeens to tax at 12% versus around 26-28%.

Both Nestlé and HUL players would benefit from the move, according to the report.

With 1,211 articles on GST rates decided, the Council has its work cut out for it today as it will deliberate on the tax rates of six to seven additional categories under the GST, including cookies, biodiesel, biris and cigarettes, shoes, textiles, farm implements and gold.

Overall out of the 1,211 items – 7% will be exempt, 19% of items will fall under the 28% tax slab, 43% of the items under the 18% slab, 14% of the items under the 5% slab , while 17% of the items will fall below the 12% slab. tax slab.

Mineral water will be taxed at 18% against around 26-28% currently. However, the industry is awaiting clarification on the beverage cessation and its likely benefits for mineral water.

Whether it’s in terms of absolute price cuts, higher A&SP or better trading margins remains unclear – it all depends on the details and clarity of the anti-profiteering law. However, most consumer companies have it. emphatically underlined in their recent call for results that the benefits will be passed on, ”added the analysts.

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