Skip to main content

GST clouds over FMCG may get darker in september quarter

The prospect of a tougher September quarter looms large for fast-moving consumer goods (FMCG) companies, as the full impact of the transition to the goods and services tax (GST) is likely to be felt during this period. While the June quarter saw trade destocking in the last 10 to 15 days of the period, companies and analysts Business Standard spoke to said the problem would persist for a longer duration in the three months to September 30. “GST is a huge reform and transition will take time. While our internal systems are ready, transition (within wholesale) will take another 30 days (to be completed),” Sunil Kataria, business head, India and South Asian Association for Regional Cooperation, Godrej Consumer Products, said.

"GST is a huge reform and transition will take time. While our internal systems are ready transition (within wholesale) will take another 30 days (to be completed)," Sunil Kataria, business head, India and South Asian Association for Regional Cooperation, Godrej Consumer Products, said.

Wholesale, which is a critical channel for FMCG firms, constitutes about 35-40 per cent of their sales. For companies such as Dabur and Emami, the proportion of sales through wholesale is estimated to be higher at about 45 per cent, analysts said.

They say that the transition period in the September quarter will extend beyond a month as wholesalers are largely unorganised, depending mostly on cash transactions.

"Our estimate is that sales growth and profitafter-tax growth in June quarter for FMCG firms will be in mid-single-digit. But the impact will be more in the September quarter given that GST demands that companies deal only with trade partners that are GST-compliant. This will mean that those who are not GST-compliant cannot take orders, impacting sales and profit growth of companies, since their universe of partners (in the interim) will be smaller," Sachin Bobade, senior analyst at Mumbaibased brokerage Dolat Capital said.

G Chokkalingam, founder, Equinomics Research & Advisory, agrees with this view. He says that improvement in sales and profit growth for FMCG firms is likely in the third quarter as trade will likely fall in line (in terms of GST requirements) by then.

"At this point, there is confusion (within trade) and restocking is taking time," Sumit Malhotra, managing director, Bajaj Corp, the maker of Bajaj Almond Drops and Bajaj Amla hair oils, said.

Recent investor-calls by most companies from Dabur to Marico to Hindustan Unilever have hinted at the possibility of teething issues persisting within trade in the September quarter.

Sunil Duggal, chief executive, Dabur India, said during the company's fourth-quarter earnings call in May: "While in the long term, GST will be beneficial for the sector, it may cause short-term disruptions in terms of down-stocking, impact on trade due to increased scrutiny, restriction on cash transaction, and changes in tax structure. But I think a lot of wholesale will become compliant and start doing business, though this could take a little longer than expected."

While companies operating in categories such as soaps, toothpastes and hair oils have effected price cuts between seven and eight per cent in July in line with gains achieved through GST, sector analysts said this may not lead to an uptick in sales in the September quarter owing to supply issues. The pain then for FMCG firms will persist a little longer.

Business Standard, New Delhi, 13th July 2017


Popular posts from this blog

At 18%, GST Rate to be Less Taxing for Most Goods

About 70% of all goods and some consumer durables likely to cost less

A number of goods such as cosmetics, shaving creams, shampoo, toothpaste, soap, plastics, paints and some consumer durables could become cheaper under the proposed goods and services tax (GST) regime as most items are likely to be subject to the rate of 18% rather than the higher one of 28%.

India is likely to rely on the effective tax rate currently applicable on a commodity to get a fix on the GST slab, said a government official, allowing most goods to make it to the lower bracket.

For instance, if an item comes within the 12% excise slab but the effective tax is 8% due to abatement, then the latter will be considered for GST fitment.

Going by this formulation, about 70% of all goods could fall in the 18% bracket.

The GST Council has finalised a four-tier tax structure of 5%, 12%, 18% and 28% but has left room for the highest slab to be pegged at 40%. A committee of officials will work out the fitment and the council…

Coffee-Toffee, the GST Debate Continues

Hundreds of crores of rupees in the form of taxes ride on the exact categorisation of products Is Parachute hair oil or edible oil? Is KitKat a chocolate or a biscuit? Is a Vicks tablet medicament or confectionery? For the taxpayer and the tax collector, this is much more than an exercise in semantics -hundreds of crores of rupees ride on the exact categorisation.
As the government moves closer to rolling out the goods and services tax (GST) on July 1, many such distinctions are being debated so that no ambiguity remains. Not just that, the government is revisiting old tax cases that were lost over product categorisation, according to people with knowledge of the matter, presumably with a view to making sure that revenue collections can be maximised. “In the past, several tax officers had challenged some of the product categorisations, including those in the retail segment, but lost out in court or at appellate level,“ said one of the persons. “Now we have a chance to go ahead with speci…

Deposit gush:-CA Institute Bats for Special Audit