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MOSL: CONSUMER-GST rates broadly in line with expectations

​CONSUMER: GST rates broadly in line with expectations

Key points:

• ​The GST rates for categories like toothpastes, soaps and household insecticides are lower than the existing indirect rates (all these came as expected in the 18% bracket). However, a higher-than-expected rate of 28% has been applied to detergents, shampoos and coffee.
  
• Among the FMCG companies, the beneficiaries are Colgate, Pidilite and ITC (for cigarette companies, no increase in effective rates is always good news).
  
• Rates were marginally higher than expectations for Asian Paints, Glaxo Consumer, P&G Hygiene and Page Industries, but all these companies have adequate pricing power to pass on the rate differential.
  
• The only clear negative was for alcohol companies like United Spirits and United Breweries. Although alcohol is out of the GST ambit, these companies would bear the brunt of higher-than-expected rates on inputs like ENA, glass bottles and barley. In the absence of input tax credit, these GST rates on inputs could have more impact on EBITDA margins if states do not grant offsets or price increases.
  
• While GST implementation is likely to lead to pipeline issues and some hiccups are expected in the wholesale trade channel in the initial implementation phase, we expect longer-term benefits for many categories due to the likely shift in trade from unorganized to organized segment.