FMCG sector cheering a healthy budget

While much of the buzz about last week's budget for 2008/09 has centred around farm loan relief, automobiles and deep cuts in personal income tax rates, it is also quietly brewing a fresh dose of enthusiasm in the food and beverage industry, thanks to a series of indirect tax concessions that are expected to bolster innovative products and spur broad-based demand.

Health enthusiasts like Jitendra Gohil, a 27-year-old employee, has reasons to cheer because Finance Minister P Chidambaram slashed excise rates on breakfast cereals to 8 per cent from 16 per cent. That should help firms like Kellogg's and domestic competitors like Mohum Meakin.

"I wlecome the move to cut the excise duty on breakfast cereals," adding that the stuff enjoys solid demand.

Anupam Dutta, managing director of Kellogg’s India says, “The move has helped us defer any price hike that we could have taken.”

Packaged coconut water, retailing at Rs 15 for 200 ml may well go down to Rs 12, thanks to the abolition of a 16 per cent excise duty cut.

Abhishek Sharma, executive director of West Bengal Awadhoot Agro (P) Ltd, which is in the business of packaged coconut water in a joint venture with West Bengal government, says the move has resulted in sales expectations for the coming fiscal year jumping from Rs 6 crore to Rs 12 crore.

Additionally, the excise duty reduction from 16 per cent to 8 per cent on specified packaging material will help personal care and processed foods players such as Hindustan Unilever, Dabur and ITC.

Anand Shah, a FMCG analyst from Angel Broking feels that the explicit thrust on agriculture this budget will also help rural consumption of fast moving consumer goods. He adds, “Companies like HUL, Dabur, Nestle, ITC etc contemplating big moves in food processing are clear beneficiaries due to expected rise in consumer spending.” He adds that a reduction in Central Sales Tax from 3 per cent to 2 per cent will also help the FMCG players.

Said Vinod Kamath, Chief of Finance & IT Marico Ltd, “The impact on Marico is mildly positive thanks to fiscal measures such as reduction in excise duty rates, reduction in CST from 3 per cent to 2 per cent, increase in service tax limits from Rs. 8 lakhs to Rs. 10 lakhs.”

Sunil Duggal, CEO of Dabur India Ltd says, “Around 40 per cent of the FMCG business today comes from the rural markets. Budget measures will surely empower consumers in the rural markets by putting more money in their pockets, a move that will boost consumption.”

Additionally, to the delight of processed food players, excise duty on tea and coffee mixes and puffed rice has been cut from 16 per cent to nil.

The budget has brought smiles to players like Amul, Mother Dairy, Nestle etc by reducing customs duty on bactofuges - which separate bacteria from milk - from 7.5 per cent to nil for the benefit of dairy industry and to increase shelf life of milk.

R S Sodhi, chief general manager, GCMMF said,“On a bactofuge which normally costs Rs 1.5 to Rs 2 crore, there is a benefit of Rs 8 to 10 lakh.” He added that the exemption of excise duty on refrigeration equipment-milk chillers (from 16 per cent to zero) will bring a benefit of Rs 5 lakh per chiller. Amul has 2000 milk chillers among its 13,000 societies in Gujarat.