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Consumer staples (Sunita Sachdev)
Budget 2011 impact: Overall positive
We believe increase in exemption limit for individual tax payers, increase in
agriculture credit and linking of NREGA wages to Inflation is positive for
consumption. The Budget has given huge thrust on agriculture health of the
economy.
— Increase in agri-credit to farmers from Rs.3,750bn to Rs4,750bn in FY12.
— Interest subvention proposed to be enhanced from 2% to 3% for
providing short-term crop loans to farmers who repay their crop loan on
time.
— In view of enhanced target for flow of agriculture credit, capital base of
NABARD to be strengthened by Rs30bn in phased manner.
We believe companies like HUL with a ~50-55% exposure to rural India will be
the biggest beneficiary.
Budget 2011 maintains the excise duty on tobacco, a key positive ITC. We
were estimating an excise duty hike of 8% in our model; which we have
rolled back. This translates into ~4-5% increase in our profit estimates for
FY12/13.
Budget 2011 has proposed an excise duty of 1% on 130 items. These include
branded jewellery; while this should affect the entire branded jewellery
sector we have reduced our estimates for Titan to incorporate for this
increase in cost- which may or may not be able to be passed onto consumers.
Budget 2011 did not provide any roadmap to FDI in multi brand retail (was
widely anticipated by the industry) which is a clear disappointment for
players like Pantaloon.
Sector view: Positive
We continue to maintain our positive stance on consumer sector and expect rural
growth to outpace urban growth in FY12. The government has proposed to take
steps to improve agricultural credit and agro-produce; which increase the money
in the hands of farmers.
Budget 2011 has also reiterated commitment on GST. We believe GST
implementation is expected to be positive for the consumer staples and retail
companies. Not only will it aid the reduction of cost by reducing the need for
local infrastructure to circumvent state taxes but also make available CENVAT
credit for inputs (goods and services) which sometimes companies are not able
to claim. Both these measures would enable a reduction in the cost base for
companies – a welcome measure.
The implementation of GST would require the co-operation of all the state
governments, which is a difficult and time consuming exercise. The government
has in the interim provided a directional change and brought 370 items which
are currently exempt from central excise duty but are chargeable under VAT.
Of these 370, 130 of them are in the nature of consumer goods have been taxed
at nominal rate of 1% and no CENVAT will be available on the manufacture of
these items. We have also presented below a snapshot of some of the important
items of the total 130, and the companies that would get affected from this
change
Top picks
ITC is our top pick for 2011, as we believe positive volume growth across its
filter portfolio should bring in better operating efficiencies. Launches in the
King-Size segment recently have aided uptrading, improving revenue mix.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Consumer staples (Sunita Sachdev)
Budget 2011 impact: Overall positive
We believe increase in exemption limit for individual tax payers, increase in
agriculture credit and linking of NREGA wages to Inflation is positive for
consumption. The Budget has given huge thrust on agriculture health of the
economy.
— Increase in agri-credit to farmers from Rs.3,750bn to Rs4,750bn in FY12.
— Interest subvention proposed to be enhanced from 2% to 3% for
providing short-term crop loans to farmers who repay their crop loan on
time.
— In view of enhanced target for flow of agriculture credit, capital base of
NABARD to be strengthened by Rs30bn in phased manner.
We believe companies like HUL with a ~50-55% exposure to rural India will be
the biggest beneficiary.
Budget 2011 maintains the excise duty on tobacco, a key positive ITC. We
were estimating an excise duty hike of 8% in our model; which we have
rolled back. This translates into ~4-5% increase in our profit estimates for
FY12/13.
Budget 2011 has proposed an excise duty of 1% on 130 items. These include
branded jewellery; while this should affect the entire branded jewellery
sector we have reduced our estimates for Titan to incorporate for this
increase in cost- which may or may not be able to be passed onto consumers.
Budget 2011 did not provide any roadmap to FDI in multi brand retail (was
widely anticipated by the industry) which is a clear disappointment for
players like Pantaloon.
Sector view: Positive
We continue to maintain our positive stance on consumer sector and expect rural
growth to outpace urban growth in FY12. The government has proposed to take
steps to improve agricultural credit and agro-produce; which increase the money
in the hands of farmers.
Budget 2011 has also reiterated commitment on GST. We believe GST
implementation is expected to be positive for the consumer staples and retail
companies. Not only will it aid the reduction of cost by reducing the need for
local infrastructure to circumvent state taxes but also make available CENVAT
credit for inputs (goods and services) which sometimes companies are not able
to claim. Both these measures would enable a reduction in the cost base for
companies – a welcome measure.
The implementation of GST would require the co-operation of all the state
governments, which is a difficult and time consuming exercise. The government
has in the interim provided a directional change and brought 370 items which
are currently exempt from central excise duty but are chargeable under VAT.
Of these 370, 130 of them are in the nature of consumer goods have been taxed
at nominal rate of 1% and no CENVAT will be available on the manufacture of
these items. We have also presented below a snapshot of some of the important
items of the total 130, and the companies that would get affected from this
change
Top picks
ITC is our top pick for 2011, as we believe positive volume growth across its
filter portfolio should bring in better operating efficiencies. Launches in the
King-Size segment recently have aided uptrading, improving revenue mix.
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