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The latest Goods and Services Tax (GST) rate rationalization is expected to give a strong boost to the fast-moving consumer goods (FMCG) sector, according to a report by Nuvama.
The report stated that almost the entire FMCG pack will benefit from the announced tax cuts, which will translate into lower prices for consumers and better margins for companies. The tax cuts are likely to drive consumption growth through three key factors, higher disposable incomes, stronger promotional activities, and grammage additions in low-unit packs. It stated "Recent GST cuts are set to boost FMCG consumption via higher disposable incomes... larger packs shall benefit from price cuts/promotions". At the same time, larger packs will gain from price cuts and targeted promotions, making products more affordable for households. Categories such as biscuits, toothpaste, soaps, shampoos, toothbrushes, and hair oils have witnessed key changes under the new GST structure, while cigarettes and CSD (Canteen Stores Department) products remain unchanged for now. Detergents, hair dye, household insecticides, skincare, and cosmetics also continue with the old rates, showing no change. The report mentioned that the big beneficiaries of the reforms include Britannia, Bikaji, and Nestle. Other major FMCG players such as Hindustan Unilever (HUL), Dabur, Emami, Colgate, Godrej Consumer, and Marico are also expected to see a positive impact. Nuvama pointed out that the changes could also lead to margin expansion for most staple companies. This is because of higher operating leverage and the absence of a formal anti-profiteering clause at this stage, which gives companies room to balance lower prices with stronger sales volumes. Among the FMCG majors, HUL stands to benefit significantly as nearly 35 per cent of its product portfolio, which includes soaps, shampoos, hair oils, oral care items, sauces, ketchups, and jams, will now attract just a 5 per cent GST rate. Similarly, for Britannia, around 85 per cent of its product portfolio, which includes biscuits, cakes, and bread - was earlier taxed at 18 per cent but will now move to the 5 per cent slab. This sharp reduction in tax rates will allow these companies to pass on benefits to consumers while simultaneously strengthening their market presence. However, some segments remain unchanged. Categories like detergents, hair dyes, household insecticides, skincare, and cosmetics have not seen any rate revision. Paints manufacturers also continue under the old tax structure, with no cuts announced. Overall, the report outlined that the GST rate rationalization will provide a broad-based boost to the FMCG sector. (ANI)
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