May 4, 2008

Post-budget analysis - FMCG

FMCG 2,474.45 +0.53%

Post-budget analysis - Indian Union Budget

What the Budget does

# Higher excise duty on non-filter cigarettes.

# Reduction in excise duty from 16% to nil on tea and coffee mixes.

# Reduction in excise duty from 16% to 8% on water purification devices, specified packaging material and breakfast cereals.

# Tea Fund to get Rs 40 crore special support fund, while Tea Research association would get Rs 20 crore.

# Customs duty on bactofuges reduced from 7.5% to nil

# Excise duty on paper, paper board and articles manufactured out of non-conventional raw materials reduced from 12% to 8% with a further reduction on clearances up to 3,500 MT from 8% to nil. Excise duty on certain varieties of writing, printing and packaging paper is to be reduced from 12 %to 8%.

# General CENVAT rate on all goods reduced from 16% to 14%.

# Central sales tax rate reduced from 3% to 2%.

Impact on sector

# Higher excise duty on non-filter cigarettes will bring it on par with both filter cigarettes. This is negative for the tobacco segment, which is already highly taxed.

# Reduction in excise duties on packaging products would provide thrust to the packaging segment. It would also help reduce wastage and spoilage.

# Reduction in excise duties on tea, coffee, water purification devices and breakfast cereals would lead to reduction in their cost and spur demand. Further, funds provided for re-plantation and rejuvenation of tea and coffee would improve the production.

# Customs duty reduction on bactofuges would benefit dairy industry and increase shelf life of milk.

Impact on companies

# ITC has leading brands in the non-filter segment like Scissors, Hero, Bristol, and Capstan. While higher excise duty would reduce its sales volumes in non-filter segment, no increase in excise on filtered cigarettes is positive. Further, reduction on excise on paper and paperboard would boost demand.

# Reduction in water purification devices would help Hindustan Unilever by way higher demand for its product 'Purefit' that it recently launched.

# Reduction in excise on tea, coffee and breakfast cereals would help companies like Tata Tea, HUL, Nestle, McLeod Rusell. Also the funds provided for plantation crops would benefit Tata Tea, Tata Coffee and Mcleod Rusell.

# Packaging materials is one area where most FMCG companies had expectations from the budget. The reduction in duties would drive growth in the processed foods and personal care segment. Essel Propack, Paper Products and FMCG companies in food segment like HUL, ITC, Nestle and Britannia would benefit.