No excise changes, incentives for cold storage chains

Consumer focussed industries stand to gain from this consumer friendly Budget which will put more income in the hands of the consumers in rural, as well as urban India, through tax cuts.

There is a strong rural focus in the budget with increased outlays for electrification, infrastructure and employement though the National Rural Employment Guarantee scheme, and over half of the revenues of the FMCG sector are from rural India.

The Budget is also beneficial to cold storage and refrigeration companies like Blue Star and Voltas as they expect an increase in business on account of the investment related incentives given to food and agriculture business developers for developing cold storage infrastructure for moving agricultural produce.

Other goodies include lowered customs duty for the LCD panels from 10 per cent to 5 per cent.

The Budget also maintains the prevalent excise duty at 4 per cent for small electrical and home appliances and energy saving appliances like water filters, pressure cookers, power driven pumps, compact fluorescent lamps (CFLs) and biscuits at 8 per cent for the appliances and consumer durables industry.

Anand Shah, FMCG analyst with Angel Broking points out, "Abolishment of FBT, no reversal of excise duty cuts and confirmation of implementation of Goods Service Tax by April 2010 come as a major relief for FMCG companies. No change in excise duties on cigarettes has come as a huge benefit for ITC (factored in 5 per cent excise hike in FY2010). The MAT rate increase from 10 per cent of book profits to 15 per cent is marginally negative for companies like Dabur and Godrej Consumer which pay lower tax rates (due to facilities in excise free zone)."

"Overall a ‘welfare budget’ which will positively impact demand for FMCG in general and Marico in specific," said Harsh Mariwala, chairman and managing director, Marico.

"The raising of MAT from 10 per cent to 15 per cent will dent the bottomline of the companies," says Aditya Agarwal, director, Emami Group of Companies. However, "Incentivising exports and continuation of benefits in this segment are steps in the right direction. The CST should also have been abolished," he adds.

As the Budget maintains a status quo on excise duties, "there will be no price hikes or reductions," says Pradeep Bakhsi, vice president (appliances), Voltas. "The refrigeration business is also expected to see increased business as the cold storage related businesses like foods and agriculture business have been provided impetus," says Gopi Krishnan, senior vice president (operations), Voltas.

"The incentives for cold storage will make investments more attractive,'' said a RPG group official, which runs Spencer's chain of stores.
 
Thomas Varghese, chief executive of Aditya Birla Retail who is waiting to see the fine print says, "If government indeed gives incentives on cold chains, it will help both farmers and retailers.''