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Budget 2013 - FMCG

Tuesday 19 March 2013

Here is hoping for many to quit smoking and saving on essential foods.

The Union Budget 2013 has raised excise duties on cigarettes roughly by 18%. For the first time in several years, there has been a back-to-back 15%+ hike in cigarette excise duties. What this essentially means is that smoking will possibly now be an expensive habit across brands.

The long awaited GST implementation and the Direct Benefits Transfer scheme is expected to come into force by end 2014, which is turn is a significant move for FMCG companies as it offers greater parity with the unorganized sector and multiple supply chain benefits. This in turn is expected to boost profits across the sector.

The proposed exemption of service tax on freight charges and on alcohol based products could lead to large savings for the sector and may either be offset against the increase in transport costs as a result of the deregulation of diesel or passed on as benefits to customers. In either case, there is no price rise expected in 2013.

So who wins this year?

Consumers could look forward to better prices on essential food items like tea, coffee, flour, sugar and edible oil, as well as discretionary products like premium soaps and deodorants. With the proposed exemption on service tax imposed on freight charges of foodstuff including flour, tea, coffee, jaggery, sugar, milk products, salt and edible oil, there could be resultant savings for FMCG and food companies. Additionally service tax of 12.36% has been removed for alcohol-based soaps and deodorants, which is also expected to benefit companies.

Want the stalwart of the industry analyze the budget for you? Click here.

Looking to invest in the FMCG sector? Click here to open an account with Kotak Securities.

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