Budget implications on foods industry

01 Mar 2006

The idli-dosa instant mix stance of the Budget 2006-07 is clear. In the past year the FMCG sector has been on the recovery path and with the proposals of the budget 2006-07 it should start booming.

Budget Measures
Excise duty on condensed milk has been abolished from 16 per cent earlier. This measure will benefit Nestle and Amul that have a large share of the condensed milk market in India.

Excise duty on Pectines and Pectates, used as a gelling agent in Jams and Jellies has been abolished fro 16 per cent earlier. Major benefit to HLL, Dabur and Marico.

Excise duty on unbranded edible oil increased from nil to 8 per cent. This will benefit edible oil companies like Marico Industries, Agrotech Foods, Cargill Foods, Adani Wilmar and host of companies selling branded edible oils.

Biscuits in the unorganised sector will now attract a duty of 8 per cent against nil earlier. This will benefit Britannia Industries, Parle Agro and ITC.

Pasta makers will benefit as excise duty on Pasta has been reduced from 16 per cent to nil. Benefit to ITC and Nestle.

Ice-creams have been exempted from excise duty. Benefit to Hindustan Lever Ltd and Amul the two big ice cream makers in the organized sector.

Excise duty on ready to eat packaged food reduced from 16 per cent to 8 per cent. This will benefit ITC, Nestle, HLL and regional players like MTR Foods and others that are trying to expand on national scale.

Instant food mixes have been exempt from excise duty. This will benefit ITC and HLL. Especially so the former which has been increasing focus on its instant food mixes in the past year.

Soaps manufactured without power will attract 16 per cent excise duty. Will benefit soap companies in the organised sector like HLL and Godrej Consumer Products.

Excise duty on processed meat, fish and poultry products reduced from 8 per cent to nil. Will benefit Venkatesh Hatcheries a big player in the organised processed meats business as well as some small players that have entered the sector.

Excise duty on yeast exempted. Since yeast is used in biscuits and bread this will benefit Britannia, Parle Agro and HLL (Modern Bread).

It is a sign of the growing prosperity of the country that the budget for the first time ever has reduced duties on products considered luxuries just five to ten years ago.

More people live in cities in India and the rural population comprises around 35 per cent of the total. Hence the Indian rural FMCG market cannot be overlooked and the measures are aimed at giving an impetus to rural spending. HLL in particular that has a strong rural distribution network and a rural focus with its Project Shakti will probably gain immensely from the budget proposals.

In line with the Budget 2006-07 measures FMCG stocks have been moving up. The ITC scrip shot up by nearly 4 per cent after the budget to close at Rs172 while HLL's share has been upward bound for quite sometime and is currently ruling at around Rs245. Till January, this year, the stock was hovering around Rs180.

Industry wish list
De-reservation of consumer products sector, which will enable Indian companies to undertake manufacturing on a mass scale resulting in operational and quality efficiencies.

Imported FMCG products subjected to quality checks on and effective enforcement of copyright laws. This would go a long way in filtering out import of sub-quality and discarded products, benefiting manufacturers and the consumers. Also, there should be a comprehensive policy to hit out at contraband imports.

Focus towards networking the food supply chain, which will enable free flow of food related products across the country, to the benefit of both manufacturers and consumers. For the government, it will mean effective utilisation of food stocks.

As per CII, excise duty difference between 'branded' and 'unbranded' food products existing at present should be removed to encourage consumers to move from unhygienic unbranded foods to hygienically packaged processed foods

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