Colgate Faces Highest Risk Of Disruption From GST, Says Credit Suisse
The brokerage house expects Colgate, Dabur and Emami to be impacted the most.
Goods and Services Tax (GST) may cause some pain for the fast-moving consumer goods sector, said Credit Suisse in a research note.
Distributors will cut stock as they wait for more clarity on how will they be compensated for taxes already paid on existing stock, said the brokerage house. While sales may pick up in the July-September quarter, that won't be enough to compensate for the drop in stock right now, leading to a disruption in supply as companies will make their pipelines leaner, it said.
Toothpaste and soap manufacturers like Colgate Palmolive Ltd. are likely to bear the brunt as taxes on toothpaste are expected to come down under GST, said Credit Suisse. Other players like Dabur Ltd., and Emami Ltd. may face a similar problem.
FMCG companies like ITC Ltd. and Hindustan Unilever Ltd. which have a leaner distribution inventory structure will recover the fastest, said CLSA.
The final transition rules for GST have increased the presumptive credit which will be given on closing stocks held on June 30 from 40 percent to 60 percent.
For most FMCG products, GST will be 18-28 percent; thus CGST will be 9-14 percent. This will imply a presumptive credit of 5.4-8.4 percent, implying a loss of 4-7 percent.Credit Suisse Research Note On FMCG Companies
Wholesalers, on the other hand, may stock up on certain products that may attract higher taxes, the brokerage said, adding that it will only lead to lower offtake in coming quarters.