FMCG firms hit in Q1 due to pre-GST sales impact: Experts

Top FMCGplayers, including Hindustan Unilever, Dabur, Marico and Emami would have performed much better in first quarter had sales not been impacted by de-stocking ahead of GSTimplementation, according to industry experts.

While HUL reported a 9.28 per cent increase in its first quarter net profit at Rs 1,283 crore, Dabur India saw its net profit dip by 9.80 per cent at Rs 264.86 crore.

Likewise, Kolkata-based Emami Ltd posted 98 per cent decline in net profit at Rs 1.04 crore. Similarly, Marico also reported an 11.92 per cent decline in consolidated net profit to Rs 235.94 crore for the June quarter.

Godrej Consumer Products Ltd reported an 8.70 per cent decline in consolidated net profit at Rs 225.17 crore for the June quarter.

The companies, in their respective financial statements said their sales were impacted due to de-stocking by channel partners ahead of GST implementation in July.

“It was expected that companies would not come out with encouraging results as trade vacuum happened and they would have definitely performed better if the GST would not have been implemented,” Godrej Group Chairman Adi Godrej told PTI.

However, he said GST is a revolutionary reform and the impact of it will normalise by the next quarter and would reflect in the Q2 and Q3 results of the companies.

Commenting on the performance of the FMCG firms in Q1, Kotak Mutual Fund Senior VP and Head of Equity Research Shibani Kurian said: “The volume and revenue growth for the FMCG companies would have been higher by around few percentage points had GST not been implemented.”

Although few FMCG players have reported decent profits, all of them have attributed the dip in sales due to transition in the run up to GST.

“Most of the companies in the sector would have likely performed a shade better in terms of profitability as operating leverage in the business is high,” Kurian said.

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When asked how long would it take for the companies for sales to pick up, Arihant Capital Markets Ltd Whole-Time Director Anita Gandhi said: “It may take one or two quarters and when complete GST implementation takes place successfully, the industry will come back to normalcy.”

Kurian also said channel inventory should be back to normal during the early part of the next quarter.

She, however, said understanding the system of filing of tax credits may take some longer for the sector at large.

Dabur India’s income from operations during the quarter was down 7.04 per cent to Rs 1,871.34 crore, as against Rs 2,013.23 crore in the corresponding quarter a year ago.

Marico also reported 3.73 per cent decline in income from operations at Rs 1,715.28 crore as against Rs 1,781.78 crore in the April-June quarter of 2016-17.

Similarly, Kolkata-based Emami’s net sales during the period under review were at Rs 541.1 crore as against Rs 645.43 crore in the year-ago quarter, a decline of 16.16 per cent.

In Q1, HUL’s net sales stood at Rs 9,094 crore as against Rs 8,662 crore in the corresponding quarter a year ago, up 4.98 per cent.
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GST: Small biz grapple with drop in orders, shutdowns

Small businesses in the state are grappling with teething trouble as GST, the month old tax regime requires a slew of registrations and compliance measures.

For some, tax slabs have risen, and for others its an increase in compliance cost, resulting in SMEs scaling down production and grappling with tech issues.

Firecracker units in Sivakasi have halved their production post GST.

K Mariyappan, a fireworks factory owner from Sivakasi, said, “Barring 50 of the 800 odd factories in Tamil Nadu most producers had to pay a VAT of 14.5% . Under the new regime this has gone up to 28%, affecting them. They have reduced production, which in inturn will lead to a price hike,” he said.

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While firecracker units see an increase in tax as a deterrant, workers from the sector having a turnover of less than Rs 20 lakh say that they are seeing their biggest clients pass on orders to registered players.

“We have not seen any units shutting down, but have seen a 50% dip in orders. Tiny industries, which supply ancilliary products attracts an 18% service tax at each elevel of production. However bigger companies which offer end-to-end solution are preferred,” said Kathiresan G, proprietor, AKK industries which supplies parts to the defence sector.

Talking about the workers where digital illiteracy seems to be a hurdle for GST registration, CK Mohan, secretary, TANSTIA (Tamilnadu Small and Tiny Industries Association), said that economically underprivileged workers need a year’s time to settle into the new system.

“This could be one of the reasons for an insignificant increase in the number of registrations,” he added. Weavers on the other hand have seen many units being shutdown. Prakash Radhakrishnan, a Kanchipuram weaver says that of the 45,000 looms in the area, almost 30,000 have shut shop. These workers with intricate skills have inturn taken up low-paying jobs as cooks or porters, he said. Demonetisation, sharp increase in silver prices and fear of GST led to a drop in sales. “We have now started buying new material for weaving and prices have gone up by at least 10%. Sales in July dipped 20%. We expect saree prices to go up by a few thousands,” he added.

Tax consultants say there is still a lot of ambiguity and lack of understanding of GST procedures which is impacting small businesses.

“There isn’t enough clarity on classifications and even the GST helpdesk cannot answer these questions. We will know only when these classifications are challenged by the department,” said Arun Ravikumar, manager with a Big 4 consulting company.


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Tech players brace for GST impact, want manufacturing norms to ease

With the government set to present the Union Budget 2017-18 on February 1, some of the leading tech companies and IT manufacturers are bracing up for the implementation of the much anticipated Goods and Services Tax (GST), demanding that the excise duty structure should be rationalised.

“The IT industry has been seeking an extension of the excise duty differential benefit scheme to cover all the Information Technology Agreement (ITA) products including desktops, laptops, telecommunications equipment etc. This would mean a zero duty on all inputs for manufacturing of electronic components and parts,” said Alok Ohrie, President and Managing Director, India Commercial, Dell-EMC.

According to Rajiv Srivastava, Managing Director, HP Inc. India, IT manufacturers are bracing themselves for the GST implementation.

“The government’s objective should be to enable this transition from the current taxation system as smooth and orderly as possible — both for itself and for businesses and consumers. It will be important to outline a roadmap for IT manufacturers for the implementation of the new GST policy well in time,” Srivastava said in a statement.

According to Ohrie, expected budget benefits include import substitution, attracting component manufacturers to set up base in the country and the creation of numerous jobs in the IT sector.

“After Make in India and demonetisation, the next big disruption is GST. The government has to carefully take measures to remonetise the economy to return to high GDP growth while maintaining cost competitiveness,” noted Vikas Agarwal, General Manager, OnePlus India.

“From policy perspective, the tax structure should be rationalised and land acquisition policies should be simplified to enable local manufacturing at a larger scale,” Agarwal added at a time when US tech giant Apple is seeking tax concessions to manufacture in India.

“The government should look for special incentives for the component industry to make manufacturing far more sustainable in India. The extension of the duty differential scheme to the PC segment will definitely take India one step closer to making it an export hub,” said Rahul Agarwal, Managing Director & CEO of Lenovo India.

According to Samson Khaou, Managing Director, Dassault Systemes India, the government must pursue the positive momentum for the dynamic and ambitious national projects like Make In India, Smart Cities and Digital India.

“Budget 2016 focused more on all-inclusive growth including boosting digital literacy, improved connectivity and access to technology across sectors. We hope to see a continued focus by the government of India in the realms of technological advancements,” Khaou said.

“We hope there is a robust policy to accelerate the utilisation of funds allocated to the IT sector so that there is a far-reaching impact of technology where every change at even the micro level will contribute towards actualisation of the larger goal of digitization,” added Rahul Agarwal.

Business Standard, 30 January 2017