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FMCG
BUDGET HIGHLIGHTS & IMPACT
n Continued Emphasis on Rural Sector Growth, Financial Inclusion
Impact: Positive. The budget takes the following steps that affect rural income
generation/ fund availability – a/ 17% growth in social sector spending, to
Rs 1.61 trn, including growth in Bharat Nirman schemes of Rs 100 bn, b/
improved availability of credit through raising of credit flow to farmers to Rs.4.75
trn. We note that although NREGA allocation has not been raised, NREGA wages
have been indexed to inflation. Companies that have a higher exposure to
rural India shall continue to benefit from the rural emphasis of the government.
n No changes in headline excise duties, including cigarettes
Impact: Positive for FMCG companies, including tobacco companies. The budget
has left the excise duties for cigarettes unchanged, after the steep hike in last
year’s budget. The lack of any changes is a positive for cigarette manufacturers,
as they would ensure higher volume growth and stability in FY12 profitability.
Excise duties on most items have remained unchanged, which augurs well for
the demand scenario in the sector.
n Improved Visibility on GST Implementation
Impact: Long-Term Positive for FMCG players. The government is due to
announce a constitutional amendment bill in the current session of the
parliament, aimed at introduction of GST. There is a clearer roadmap for GST
implementation, and the government’s commitment towards the same. GST
is likely to reduce end – consumer prices, and is likely to benefit FMCG
companies. This announcement is, therefore a long-term positive for the industry
in general.
n Changes in MAT
Impact: Neutral. The changes in MAT (18.5%, from 18% currently), along
with the changes in surcharge (5%, from 7.5% currently) are largely neutral
for all companies under the MAT.
n Certain items, which were thus far enjoying excise rates of 4%, have
been raised to 5%.
Impact: Minor Negative for large FMCG companies. Affected items include
miscellaneous consumer products such as sauces, ready-to-eat items, coffee,
and education stationary. However, given low dependence of most majors on
these items, we believe the negative impact shall be minor.
n Attempts to address long-term supply chain issues:
Impact: Long-Term Positive for FMCG players. The budget has taken attempts
to improve supply chain issues that arise in food items, and has, specifically,
launched a Rs 3 bn plan to improve palm oil output in the country. This is a
positive for companies highly exposed to the commodity.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
FMCG
BUDGET HIGHLIGHTS & IMPACT
n Continued Emphasis on Rural Sector Growth, Financial Inclusion
Impact: Positive. The budget takes the following steps that affect rural income
generation/ fund availability – a/ 17% growth in social sector spending, to
Rs 1.61 trn, including growth in Bharat Nirman schemes of Rs 100 bn, b/
improved availability of credit through raising of credit flow to farmers to Rs.4.75
trn. We note that although NREGA allocation has not been raised, NREGA wages
have been indexed to inflation. Companies that have a higher exposure to
rural India shall continue to benefit from the rural emphasis of the government.
n No changes in headline excise duties, including cigarettes
Impact: Positive for FMCG companies, including tobacco companies. The budget
has left the excise duties for cigarettes unchanged, after the steep hike in last
year’s budget. The lack of any changes is a positive for cigarette manufacturers,
as they would ensure higher volume growth and stability in FY12 profitability.
Excise duties on most items have remained unchanged, which augurs well for
the demand scenario in the sector.
n Improved Visibility on GST Implementation
Impact: Long-Term Positive for FMCG players. The government is due to
announce a constitutional amendment bill in the current session of the
parliament, aimed at introduction of GST. There is a clearer roadmap for GST
implementation, and the government’s commitment towards the same. GST
is likely to reduce end – consumer prices, and is likely to benefit FMCG
companies. This announcement is, therefore a long-term positive for the industry
in general.
n Changes in MAT
Impact: Neutral. The changes in MAT (18.5%, from 18% currently), along
with the changes in surcharge (5%, from 7.5% currently) are largely neutral
for all companies under the MAT.
n Certain items, which were thus far enjoying excise rates of 4%, have
been raised to 5%.
Impact: Minor Negative for large FMCG companies. Affected items include
miscellaneous consumer products such as sauces, ready-to-eat items, coffee,
and education stationary. However, given low dependence of most majors on
these items, we believe the negative impact shall be minor.
n Attempts to address long-term supply chain issues:
Impact: Long-Term Positive for FMCG players. The budget has taken attempts
to improve supply chain issues that arise in food items, and has, specifically,
launched a Rs 3 bn plan to improve palm oil output in the country. This is a
positive for companies highly exposed to the commodity.
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