Faster growth ahead for FMCG companies
The abolition of fringe-benefit tax and higher allocation under NREGS would be positive trigger for consumer sector at large.
The abolition of fringe-benefit tax and higher allocation under NREGS would be positive trigger for consumer sector at large, increase in MAT rate from 10% to 15% would adversely impact the earnings of Dabur and Godrej Consumer Products.
No change in excise duty structure for cigarettes does provide a much needed booster for ITC in the near term.
On the other hand, higher allocation towards various agri and irrigation-linked schemes would propel the micro irrigation business growth, the measures fall short of our expectations (expecting micro irrigation to be included under mission mode).
Sectors like media, education and aviation were more or less untouched.
FMCG: With government continuing to focus on ‘higher disposable income’ in the hands of rural India and ‘inclusive growth’, it has increased the budget allocation towards National Rural Employment Guarantee Scheme by 144% at Rs 39,100 crore. This would propel consumption spends in the economy and thereby help volume growth for FMCG companies at large. We could see faster growth in the coming quarters. Government has also abolished fringe benefit tax (FBT), thereby aiding a 1-1.5% improvement in earnings per share for most of the FMCG players barring Godrej Consumer. While all the FMCG companies would tend to gain from this, GCPL and Dabur are adversely impacted by 5% increase in MAT rates (from 10% to 15%). This would result in 2.5-3% drop in EPS of Dabur and GCPL, net of the gains from savings on FBT.
Cigarettes: With fiscal deficit being the biggest concern for the government and post the increase in sales tax on cigarettes in Delhi and Maharashtra (up from 12.5% to 20%), we were expecting tax increase on cigarettes, either in the form of excise duty increase or VAT increase. Increase in taxation at over 5% would have impacted our volume growth estimates for ITC. However, cigarettes excise rates have been left untouched. This would have a positive impact on the cigarettes business, as after a span on 2 years the sector gets relief from price increases (VAT implementation in FY08 and higher taxation on non-filters in FY09) and thereby will see no disruption in volumes (saw 1.5% volume decline in FY08 and 3% in FY09). We are expecting 3% volume growth for ITC’s cigarettes portfolio for the next couple of years.
Media: The government has made no changes to the foreign ownership rules pertaining to media, news media in particular. While the sector remains largely neglected, government has extended the stimulus for print media by 6 months, besides imposing 5% customs duty on set-top boxes. We believe neither of the two measures would have any material impact on media sector.
Education: While lot was expected from the budget for the education sector —- in terms of higher budgetary allocation, opening up of the sector for more private participation and more public private partnership projects, the Union Budget has eluded from making any moves in the direction. Most of the education sector stocks have witnessed a sharp run up in anticipation of budget, which we feel will see material price correction.
Aviation: Indian aviation sector, highly indebted and making losses of $1 billion annually, was expecting government to open up the sector to FDI. This would have helped the players in the ailing sector to deleverage the balance sheet as also fund the capex. However, government has made no such announcement, extending the pain period for the aviation sector.
Exchanges: The government has announced abolition of commodity transaction tax, which was proposed in the interim budget. While it does not have any bearing on the financials (as it was not yet implemented), abolition clears the overhang. We remain positive on the exchange sector and Financial Technologies.
Positive impact on: ITC, Jain Irrigation, all FMCG firms, Financial Technologies
Negative impact on: Dabur, GCPL
The author is MD, IDFC SSKI
No change in excise duty structure for cigarettes does provide a much needed booster for ITC in the near term.
On the other hand, higher allocation towards various agri and irrigation-linked schemes would propel the micro irrigation business growth, the measures fall short of our expectations (expecting micro irrigation to be included under mission mode).
Sectors like media, education and aviation were more or less untouched.
FMCG: With government continuing to focus on ‘higher disposable income’ in the hands of rural India and ‘inclusive growth’, it has increased the budget allocation towards National Rural Employment Guarantee Scheme by 144% at Rs 39,100 crore. This would propel consumption spends in the economy and thereby help volume growth for FMCG companies at large. We could see faster growth in the coming quarters. Government has also abolished fringe benefit tax (FBT), thereby aiding a 1-1.5% improvement in earnings per share for most of the FMCG players barring Godrej Consumer. While all the FMCG companies would tend to gain from this, GCPL and Dabur are adversely impacted by 5% increase in MAT rates (from 10% to 15%). This would result in 2.5-3% drop in EPS of Dabur and GCPL, net of the gains from savings on FBT.
Cigarettes: With fiscal deficit being the biggest concern for the government and post the increase in sales tax on cigarettes in Delhi and Maharashtra (up from 12.5% to 20%), we were expecting tax increase on cigarettes, either in the form of excise duty increase or VAT increase. Increase in taxation at over 5% would have impacted our volume growth estimates for ITC. However, cigarettes excise rates have been left untouched. This would have a positive impact on the cigarettes business, as after a span on 2 years the sector gets relief from price increases (VAT implementation in FY08 and higher taxation on non-filters in FY09) and thereby will see no disruption in volumes (saw 1.5% volume decline in FY08 and 3% in FY09). We are expecting 3% volume growth for ITC’s cigarettes portfolio for the next couple of years.
Media: The government has made no changes to the foreign ownership rules pertaining to media, news media in particular. While the sector remains largely neglected, government has extended the stimulus for print media by 6 months, besides imposing 5% customs duty on set-top boxes. We believe neither of the two measures would have any material impact on media sector.
Education: While lot was expected from the budget for the education sector —- in terms of higher budgetary allocation, opening up of the sector for more private participation and more public private partnership projects, the Union Budget has eluded from making any moves in the direction. Most of the education sector stocks have witnessed a sharp run up in anticipation of budget, which we feel will see material price correction.
Aviation: Indian aviation sector, highly indebted and making losses of $1 billion annually, was expecting government to open up the sector to FDI. This would have helped the players in the ailing sector to deleverage the balance sheet as also fund the capex. However, government has made no such announcement, extending the pain period for the aviation sector.
Exchanges: The government has announced abolition of commodity transaction tax, which was proposed in the interim budget. While it does not have any bearing on the financials (as it was not yet implemented), abolition clears the overhang. We remain positive on the exchange sector and Financial Technologies.
Positive impact on: ITC, Jain Irrigation, all FMCG firms, Financial Technologies
Negative impact on: Dabur, GCPL
The author is MD, IDFC SSKI