Budget 2011: FMCG FY11 started off very well for the FMCG sector with companies showing solid growth and firm margins. However, as the year progressed inflation played spoilsport. As input costs continued to climb, margins of FMCG companies came under pressure. As a result of strong competition and the fear that high product prices would either trigger down trading or demand destruction, FMCG companies took judicial price increases. While this resulted in strong top line growth, margins of companies witnessed downward pressure. Sharp increase in advertisement expenses also put pressure on margins of these companies.

Budget Expectations

	Continued thrust and higher allocation to social and developmental programs – especially MGNREGA.
	No change in Cenvat rate, considering the high inflation and rising input prices
	No change in excise rate on tobacco products
	Reduction of MAT rate - currently applicable at 18%
	Roadmap for implementation of DTC and GST.
	Dropping all surcharges on income tax.
	Reduction of dividend distribution tax rate to around 10%.
	Excise exemption to encourage value-addition in rice bran oil processing.
	Exemption or reduction of excise duty on Food grade hexane.
	Exemption of oil refining industry from excise duty
	Waiver of excise duty on sanitary napkins
	Complete exemption from the present level of import duty of 10% on import of filter paper for tea bags.
	Expand limits for income tax exemptions

Budget Measures

	Increase in tax exemption limit from Rs 160,000 to Rs 180,000 for individual tax payers.
	Lowering of qualifying age of senior citizen from 65 to 60.
	Enhancing the tax exemption limit of senior citizen from Rs 240,000 to Rs 250,000.
	Focus on road and infrastructure development.
	Raising the corpus of Rural Infrastructure Development Fund from Rs 160 bn to Rs 180 bn, with the additional allocation dedicated to the creation of warehousing facilities.
	Removal of production and distribution bottlenecks for key agriculture items under the Rashtriya Krishi Vikas Yojana (RKVY). Increase in allocation to RKVY increased from Rs 67.5 bn to Rs 78.6 bn.
	Providing Rs 3 bn to promote 60,000 pulses villages in rainfed areas for increasing crop productivity and strengthening market linkages.
	Allocating Rs 3 bn to bring 60,000 hectares under oil palm plantation, by integrating the farmers with the markets.
	Providing Rs 3 bn for implementation of vegetable initiative to improve production and incomes for the farmers
	Provision of Rs 3 bn to promote higher production of cereals, upgrade their processing technologies and create awareness regarding their health benefits.
	Launch of The National Mission for Protein Supplements in 2011-12 with an allocation of Rs 3 bn to promote animal based protein production through livestock development, dairy farming, piggery, goat rearing and fisheries in selected blocks.
	Allocation of Rs 3 bn for Accelerated Fodder Development Programme.
	Raising of target of credit flow to the farmers from Rs 3.75 tn to Rs 4.75 tn in 2011-12.
	Setting up of 15 mega food parks.
	Indexation of wage rates under MGNREGA to the Consumer Price Index for Agricultural Labour.
	Increase in MAT from 18% to 18.5%.
	Reduction in excise duty on sanitary napkins and diapers.
	Withdrawal of excise exemption on writing or printing paper for printing of educational text books, notebooks & exercise note books, tooth powder, medicaments (including those used in Ayurvedic), coffee or tea pre mixes, sauces, ketchup and the like, soups and broths and preparations, all kinds of food mixes, including instant food mixes, ready to eat packaged food, milk containing edible nuts. These items would now attract 1% duty without CENVAT credit facility
	Full Central Excise duty exemption for air conditioning equipment & panels of 3 Tonne air-conditioning capacity and above, and refrigeration panels required for the installation of a cold storage, cold room or refrigerated vehicle for the preservation, storage, transport or processing of agricultural, apiary, horticultural, dairy, poultry, aquatic & marine produce.
	Reduction of basic customs duty on Crude Palm Stearin imported for the manufacture of laundry soap, from 20% to nil.

Budget Impact

	Focus on rural lending and increase in capital of rural banks will help farmers access cheap loans. Further, extension of repayment of loan and concession for timely repayment helps reduce the burden on farmers.
	Various schemes for rural development will help improve the living standards in the rural area and help provide better access to the rural heartlands.
	Readjustment of tax slabs will help increase the disposable income in the hands of consumers.
	Concessional duties and exemption of service tax will help boost setting up of cold storages, cold units and refrigeration units.
	Reduction of excise duty on sanitary napkins and diapers will help reduce prices on these items.
	Withdrawal of exemption on excise duty on various ayurvedic, paper and food items will increase their prices.

Company Impact

	Focus on rural spending is a big positive for most company as they have started targeting the rural sector. These include HUL, ITC, Marico, Godrej, Dabur, etc
	Spending on setting up warehousing and cold storages is a big positive as it helps provide better logistics and lowering of wastes. The companies which would benefit are Nestle, HUL, ITC, Britannia etc
	Fall in duty for sanitary napkins is a positive for P&G as it will reduce the price of its sanitary napkin. Similarly, fall in duty for diapers is a positive for Godrej as it will reduce the price of its diapers.
	Imposition of 1% excise duty on ayurvedic medicines is a negative for companies making ayurvedic products like Dabur. Similarly imposition of 1% excise duty on various food products is a negative for companies like HUL, ITC, Nestle, Tata Tea, Tata Coffee etc.
Budget Impact: FMCG Sector Analysis for 2010  Latest: Performance Of FMCG Stocks | FMCG Sector Report

Complete coverage – Budget 2011