India Consumer & Retail Union Budget 2011 : Key takeaways

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India Consumer & Retail
Union Budget 2011 : Key takeaways


• Sweet budget for ITC. Contrary to our expectations, excise duty was
kept unchanged for cigarettes. This is a significant positive for ITC,
whose cigarette volume growth has been marred by severe tax hikes
over the past year. ITC had already undertaken 5% weighted average
price hikes ahead of the budget announcement. We had built in 5%
excise duty hike in our estimates and the no-change in the duty structure
provides potential upside of c3% to our earnings estimates keeping other
things constant.
• Excise duty @10% imposed on branded readymade garments. Duty
would be charged at 60% of the retail sale price. This in our view is
potentially negative for Pantaloon Retail as apparel accounts for c35% of
its sales and this increase could impact volume offtake. Management
noted that 4-5% price increase for their apparel portfolio will likely
offset the impact of this excise hike.
• MAT raised marginally from 18% to 18.5%. This will increase tax
payout marginally for Dabur India and Godrej Consumer, considering
majority of their domestic production is from tax exempt zones.
However surcharge has been reduced from 7.5% to 5% which will offset
MAT increase.
• Service tax of 5% has been proposed on all the hotels with an ARR
of over Rs1,000 per night. Service tax is a pass on to the customers and
we don’t see any meaningful impact on our estimates for ITC’s hotel
business which contributes c4% to ITC’s overall EBITDA.
• Reduction in central excise duty on sanitary napkins and baby
diapers from 10% to 1%. This is positive for Procter & Gamble
Hygiene and Healthcare.
• Imposition of 1% excise duty on Processed foods like coffee or tea pre
mixes, sauces, ketchup, soups, all kinds of food mixes, instant food
mixes, ready to eat packaged food, pasta, noodles, etc., Malted milk
(including powder), fruit pulp or fruit juice based drinks and Flavoured
milk. This should affect packaged food companies like Nestle India,
Hindustan Unilever and Dabur (fruit juices). They will be required to
take marginal price increases which should be manageable in our view.
• Imposition of 1% excise duty on branded jewelry. This will have
marginal impact for Titan Industries.
• Focus on Rural development continues. The government has increased
its target for agri based lending by 27% and also, allocation under Bharat
Nirman (rural development initiatives) has risen by 21%. These bode
well for rural consumption which accounts for 30-50% sales for FMCG
companies.