FMCGโฃ Stocks Surge โon GST Rate Rationalization
New Delhi – September 20, 2023 – A sweepingโข overhaul ofโค India’s Goods and Servicesโ Tax (GST) โคstructure, approved by the GST Council on Wednesday โคnight, is poised โขto substantially benefit Fast-Moving Consumer Goods (FMCG) companies. The Council streamlined the GST system toโ a two-slab structureโ of 5% and 18%, with a 40% rate for sin and luxury goods, eliminating the previous 28% and 12% slabs.The changes โtake effect September 22nd, following signals from Prime Minister Narendra Modi’s August 15th โIndependence Day address.
Analysts at brokerage firm Nomura predict the reduction in โGST for staples and essential categories from 18% to 5% will โคalleviate pressure on consumer spending, boost salesโ volume, and encourage formalization within industries currently dominated by unorganized players.
Here’s a breakdown of how key โFMCG stocks are expected toโ be impacted:
Colgate: The company’s entire product portfolio -โ including toothpaste, toothbrushes, personal wash, and toothpowder – will see aโ GST reduction,โฃ moving from 18% or 12% to 5%.
Britannia: Approximatelyโ 85% of Britannia’s portfolio โขwill benefit.Biscuits and โคcakes,representing 78% of sales,will move from 18%โฃ to 5%,as will its Dairy segment (5% of sales).
Nestleโ India: Roughly 67% โof Nestle India’s sales โwill be positively affected.Coffeeโ and chocolates (nearly a โคthird of sales)โข and noodles & Milkmaid (35% of sales) willโค shift from 18% to โ5%.
Dabur: Nearly half of Dabur’s consolidated โขsales โคwillโฃ gain from theโค changes. Toothpastes, hair oils,โฃ and shampoos (28%โค of sales) will moveโ from 18% to 5%, while juices, digestives, ethical products, and toothpowderโ (25% โฃof sales) will drop from 12% to 5%.
Hindustan Unileverโข (HUL): 37% of HUL’s sales, encompassing soaps, shampoos, toothpastes, health food drinks, and coffee, will be taxed โat 5%โฃ instead of 18%. Additionally, sauces, jams, mayonnaise, and noodles (3% of sales)โ will move โคfrom 12% to 5%.
Bikaji Foods: The GST on theโฃ company’s core products – namkeens, bhujia, and snacks – will โdecrease fromโข 12% to 5%, impacting 80-85% of revenue.
Bajaj consumers: Hair oil, which accounts for 83% of Bajaj Consumers’โข sales, will see its GST rate reduced from 18%โฃ to 5%.
Varun Beverages: Whileโค carbonated beverages will now โbe taxed at 40% (previously 28% plus a 12%โค compensation cess),โฃ Nomura analysts anticipate aโค neutral impact as the โcess โคis โคbeing integrated into the overall rate.Footwear Stocks (Bata, Red Tape, Metro Brands, โetc.): Footwear pricedโ at โน2,500 or below will experience a GST reduction โคfrom 12% to 5%, while footwear costing โน2,500 โคand โabove will remain at 18%.