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FMCG
The year 2010 was mixed for the Indian FMCG sector. Steady growth was witnessed amidst steep raw material
price inflation affecting overall profitability of the companies. However, all the companies resorted to price hikes to
protect their eroding margins Acquisitions continued margins. this year too, envisaging the growth potential underlined by
the FMCG companies and the sector itself.
The past few months saw prices of input costs for the FMCG companies sky-rocket, which are expected to remain
range bound. Adding fuel to the fire has been the concerns of high food inflation as well as the recent Egypt crisis.
Prices of commodities like palm oil and most other agri commodities have spiked sharply. However, crude and
crude oil derivatives (like LAB and HDPE) are below their peaks. Going forward, we believe that the raw material
cost inflation would remain a prime concern for all the companies. We have factored in the input cost inflation
and expect operating margins to decline compared to FY2010 levels.
The FMCG majors are aggressively pushing for growth and gain in market share ahead of margin preference.
Competition has further intensified both at the domestic as well as the global level. Also, we believe that as the
rural area focus continues, the FMCG sector would stand to benefit. Any positive changes in the tax slabs,
spending towards agricultural sector could be a positive for the companies. However, roll back of excise duty and
hike in customs duty on any raw materials may exert pressure on the companies.
Budget Expectations
Head Current Status Wish List Potential Impact
MAT MAT at 18% No change If the current MAT rate is increased, it could impact
companies like HUL ,GCPL and Dabur India.
FMCG companies benefit as the manufacturing
Excise Duty Currently at 10% No increase in excise duty
p g
facilities are located in excise-free zones. However, any
increase could be negative for the companies (HUL
will be impacted the most).
Higher allocation to social
Rural initiatives to remain a
priority and further increase
Positive for the sector as a whole, as it will maintain
Rural focus schemes
schemes like NREGS, Indira
Gandhi Vikas Yojana
in allocation of resources
towards the mentioned
schemes
the momentum to spur income levels. The FMCG
companies have been increasing their focus on rural
India.
E i d t i tt Duty varies per the Expected hike expected to be
i l ( 56%)
A hike of ~5-6% in the excise duty on cigarettes would
be Neutral for I Excise duty on cigarettes u y va es as pe e TC, as it will be able to pass on the
length of the cigarette sticks marginal (~5-6%) Neu a o C, w ab e o o e
increase. ITC has already taken a weighted average
price hike of ~5% in anticipation of an excise hike.
GST GST implementation
delayed till FY2012
Roadmap for implementation
of GST
FMCG companies will benefit from the uniform,
simplified and single-point taxation across product categories, which will weed out waste from the system
Top Picks
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
FMCG
The year 2010 was mixed for the Indian FMCG sector. Steady growth was witnessed amidst steep raw material
price inflation affecting overall profitability of the companies. However, all the companies resorted to price hikes to
protect their eroding margins Acquisitions continued margins. this year too, envisaging the growth potential underlined by
the FMCG companies and the sector itself.
The past few months saw prices of input costs for the FMCG companies sky-rocket, which are expected to remain
range bound. Adding fuel to the fire has been the concerns of high food inflation as well as the recent Egypt crisis.
Prices of commodities like palm oil and most other agri commodities have spiked sharply. However, crude and
crude oil derivatives (like LAB and HDPE) are below their peaks. Going forward, we believe that the raw material
cost inflation would remain a prime concern for all the companies. We have factored in the input cost inflation
and expect operating margins to decline compared to FY2010 levels.
The FMCG majors are aggressively pushing for growth and gain in market share ahead of margin preference.
Competition has further intensified both at the domestic as well as the global level. Also, we believe that as the
rural area focus continues, the FMCG sector would stand to benefit. Any positive changes in the tax slabs,
spending towards agricultural sector could be a positive for the companies. However, roll back of excise duty and
hike in customs duty on any raw materials may exert pressure on the companies.
Budget Expectations
Head Current Status Wish List Potential Impact
MAT MAT at 18% No change If the current MAT rate is increased, it could impact
companies like HUL ,GCPL and Dabur India.
FMCG companies benefit as the manufacturing
Excise Duty Currently at 10% No increase in excise duty
p g
facilities are located in excise-free zones. However, any
increase could be negative for the companies (HUL
will be impacted the most).
Higher allocation to social
Rural initiatives to remain a
priority and further increase
Positive for the sector as a whole, as it will maintain
Rural focus schemes
schemes like NREGS, Indira
Gandhi Vikas Yojana
in allocation of resources
towards the mentioned
schemes
the momentum to spur income levels. The FMCG
companies have been increasing their focus on rural
India.
E i d t i tt Duty varies per the Expected hike expected to be
i l ( 56%)
A hike of ~5-6% in the excise duty on cigarettes would
be Neutral for I Excise duty on cigarettes u y va es as pe e TC, as it will be able to pass on the
length of the cigarette sticks marginal (~5-6%) Neu a o C, w ab e o o e
increase. ITC has already taken a weighted average
price hike of ~5% in anticipation of an excise hike.
GST GST implementation
delayed till FY2012
Roadmap for implementation
of GST
FMCG companies will benefit from the uniform,
simplified and single-point taxation across product categories, which will weed out waste from the system
Top Picks
- ITC
- Dabur
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