FMCG Stocks Surge on GST Rate Rationalization
New Delhi – September 20, 2023 – A sweeping overhaul of India’s Goods and Services Tax (GST) structure, approved by the GST Council on Wednesday night, is poised to substantially benefit Fast-Moving Consumer Goods (FMCG) companies. The Council streamlined the GST system to a two-slab structure of 5% and 18%, with a 40% rate for sin and luxury goods, eliminating the previous 28% and 12% slabs.The changes take effect September 22nd, following signals from Prime Minister Narendra Modi’s August 15th Independence Day address.
Analysts at brokerage firm Nomura predict the reduction in GST for staples and essential categories from 18% to 5% will alleviate pressure on consumer spending, boost sales volume, and encourage formalization within industries currently dominated by unorganized players.
Here’s a breakdown of how key FMCG stocks are expected to be impacted:
Colgate: The company’s entire product portfolio - including toothpaste, toothbrushes, personal wash, and toothpowder – will see a GST reduction, moving from 18% or 12% to 5%.
Britannia: Approximately 85% of Britannia’s portfolio will benefit.Biscuits and cakes,representing 78% of sales,will move from 18% to 5%,as will its Dairy segment (5% of sales).
Nestle India: Roughly 67% of Nestle India’s sales will be positively affected.Coffee and chocolates (nearly a third of sales) and noodles & Milkmaid (35% of sales) will shift from 18% to 5%.
Dabur: Nearly half of Dabur’s consolidated sales will gain from the changes. Toothpastes, hair oils, and shampoos (28% of sales) will move from 18% to 5%, while juices, digestives, ethical products, and toothpowder (25% of sales) will drop from 12% to 5%.
Hindustan Unilever (HUL): 37% of HUL’s sales, encompassing soaps, shampoos, toothpastes, health food drinks, and coffee, will be taxed at 5% instead of 18%. Additionally, sauces, jams, mayonnaise, and noodles (3% of sales) will move from 12% to 5%.
Bikaji Foods: The GST on the company’s core products – namkeens, bhujia, and snacks – will decrease from 12% to 5%, impacting 80-85% of revenue.
Bajaj consumers: Hair oil, which accounts for 83% of Bajaj Consumers’ sales, will see its GST rate reduced from 18% to 5%.
Varun Beverages: While carbonated beverages will now be taxed at 40% (previously 28% plus a 12% compensation cess), Nomura analysts anticipate a neutral impact as the cess is being integrated into the overall rate.Footwear Stocks (Bata, Red Tape, Metro Brands, etc.): Footwear priced at ₹2,500 or below will experience a GST reduction from 12% to 5%, while footwear costing ₹2,500 and above will remain at 18%.