A Neutral Budget For The FMCG Space

DSIJ Intelligence / 28 Feb 2013

A near indifferent budget for the FMCG sector did not surprise the space since it did not have major expectations from it. The shares, however, saw a decline due to the overall market volatility.

There was no major impact on the Fast Moving Consumer Goods (FMCGs) space. To be precise, there were no major expectations from the space and the FM did not give any surprises either. However, due to volatile market conditions, and the Sensex falling by 1.52% to close at sub 18800 levels, impacted the BSE FMCG index to close the day lower by 0.37% to 5669 levels.

Following are the key Budget announcements with regard to the FMCG sector:

  • Rs 80,194 crore allocated for FY2014 to the Ministry of Rural Development, which is an increase of 46% of the revised estimate of FY2013. This is a good move for the space, as companies on an aggregate basis post a turnover of approximately 35% to 40% of their topline from the rural areas.
  • Agriculture credit target for FY2014 is estimated at Rs 7,00,000 crore, which is higher by Rs 1,25,000 crore of the Budget estimate of FY2013. Also, a sum of Rs 27,049 crore, which is a rise of 22% allocated to the Ministry of Agriculture. Higher allocation to the agriculture sector would provide a boost to the farmers and would benefit good crop production helping the companies in the space in softening their input cost. 
  • A specific excise duty on cigarettes increased by about 18% and a similar increase is also made on cigars, cheroots and cigarillos. The move would result into higher realisation for the tobacco major ITC, as the demand for the same is inelastic in nature and ITC would pass on these costs to the consumers. 
  • A working draft on Goods and Service Tax (GST) amendment bill and GST law is expected to be taken forward. There was no concrete announcement on the GST front in the Budget. However, if the same is passed through in FY2014, it would be a positive sign for the FMCG players as their distribution cost would then come down. 
  • Further, there was no change in Service, Excise and Custom duty. It was maintained at 12% each, which is bound to have a zero impact on companies.
Overall, we believe that there was no major trigger for the sector. With the government in its reformist mood, the sector and the companies are hoping that the GST bill will pass through smoothly and will at least be implemented by 2014. It was on account of volatile market conditions, that the FMCG stocks like Hindustan Unilever, Colgate Palmolive India and Dabur India closed lower by almost 2%. While the FMCG index major ITC moved higher by 3% on an intraday basis, it ended the day unchanged at Rs 295.10 per share.

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