GST To Benefit ITC, HUL and Colgate the Most

In what could be termed as a defining moment for Indian tax reforms, the government recently set a five-tier tax structure of 0 per cent, 5 per cent, 12 per cent, 18 per cent and 28 per cent for different goods and services under the planned GST (goods & services tax) regime. While details relating to various segments and their respective tax rates are still looked-for, based on the first impression, it appears most of the FMCG companies are likely to gain from the new tax rates.

In a sectoral impact analysis, experts said that they expect a majority of personal care and household items including toothpaste, detergents, dishwash, hair oil, shampoo, soaps to be in the 18 per cent slab, thus providing a big uplift to related FMCG companies. Currently, the tax imposed on these companies stands at around 25-27 per cent.

Analysts also said that under the FMCG coverage space, companies like HUL (Hindustan Unilever), Colgate-Palmolive, Dabur and Jyothy Laboratories would be the prime beneficiaries of the proposed tax rate.

The designed tax slabs are expected to make tobacco companies like ITC and VST Industries heave a sigh of relief. Currently, cigarette companies’ combined tax incidence is 55-60 per cent, including excise duty and VAT.

Symbol

1M

3M

6M

1Y

BRITANNIA

-7.48

0.67

10.75

2.93

COLGATE

0.74

1.32

14.98

1.5

DABUR

4.23

4.33

2.86

12.77

EMAMI

1.73

3.98

5.06

11.01

GODREJ CONSUMER

-8.26

-1.33

7.12

12.22

GSK CONSUMER

-7.56

-8.57

-2.61

-3.62

HUL

-5.46

-10.45

-3.96

3.08

ITC

3.35

0.67

15.06

10.53

MARICO

-5.43

-8.9

5.22

160.77

Marico share price has risen most in one year but has been slipping in past quarter. Godrej consumer share price has lost most in a month’s time. GSK Consumer share price have been declining since a year and HUL share price have been slipping from past two quarters. Colgate, Dabur, Himami and ITC share price have been gaining since a year.

Under the new structure, the government has planned a rate of tax rate of 28 per cent on tobacco products in addition to the cess, while excise duty remains the same. However, there is no clarity on the amount of cess to be levied. Still, this provides respite to the cigarette companies, as the final tax incidence is anticipated to be lower than the expectation of 40 per cent demerit tax.

The D-Street analysts have a positive stance for logistics and warehousing companies as well. According to them, with the implementation of GST, the efficiency of the system will also perk up in terms of logistics and warehousing. Additionally, the premiumization trend across personal care and household items and estimated increase in penetration supported by competence in the supply chain led by GST would drive the sector.