Mint Explainer | How India’s FMCG companies navigated sales after structural GST changes

Under the new GST structure, various consumer goods, including toothpaste, toothbrushes, hair oils, shampoos, soaps, biscuits, chocolates and Ayurvedic products, which were earlier taxed at 18 per cent, now attract 5 per cent GST. Products that were previously taxed at 12%, such as instant noodles, cheese and namkeen, have also been moved to the 5% bracket.

The change is expected to improve affordability in the long run and benefit Colgate-Palmolive India, Hindustan Unilever (HUL), Dabur India, Godrej Consumer Products, Tata Consumer Products, Nestlé, Marico, Britannia and Patanjali. However, in the short term, most companies reported trade disruptions and stock liquidations as distributors and retailers adjusted to the new pricing regime.

Top FMCG companies selling biscuits, soaps, food staples and juices reported mixed volume growth in the September quarter; While companies like Britannia reported declines, Hindustan Unilever reported flat year-on-year volume growth

Which part of FMCG companies’ product portfolio has been affected by the revised GST rates?

Except for tobacco and aerated beverage manufacturers, where GST rates remain unchanged, a large portion of most FMCG companies’ product portfolios have fallen below the revised rates.

Dabur India said almost 66% of its portfolio has benefited from the GST rate cut and has moved 86% of its total portfolio to the 5% range. Dabur estimated an impact of approx. ₹100 crore or 3-4% of quarterly revenue due to GST transition during the period. It reported a 2% increase in September quarter volumes, while consolidated revenue increased 5% year on year.

“While the GST cut was structurally positive, it caused a temporary disruption to trade as the channel anticipated future interest rate cuts,” the company said in its post-earnings call last month. he said.

HUL said 40% of its portfolio and nearly half of its SKUs are now in the 5% GST category. The company passed the benefits fully to consumers by making pricing and package weight changes on 1,200 SKUs. However, this led to a temporary impact on volume growth, particularly in the personal care and hair care segments where over 90% of the portfolio was subject to GST-related rate changes. The company reported flat volumes in the September quarter.

Biscuit maker Britannia Industries said the new rates affected about 85% of its portfolio, causing short-term headwinds in September as distributors and channel partners destocked and consumers postponed purchases in anticipation of lower prices. Packaged biscuits now attract 5% GST, which was 18% earlier.

Mumbai-based Godrej Consumer Products said almost a third of its portfolio – primarily toilet soaps and smaller categories such as talcum powder, shampoo and shaving creams – now benefits from the 5% reduced GST. GST on soap portfolio decreased from 18% to 5%.

The biggest loser in terms of volume was oral care company Colgate-Palmolive India. Colgate reported a 6% year-on-year revenue decline, marking its weakest performance in several quarters as the GST transition disrupted cross-channel trade.

The company attributed this decline to temporary destocking at the distributor and retailer levels and pantry rationalization by consumers. The management pointed out the high base effect compared to the previous year. GST rates on toothpastes have been reduced from 18% to 5%.

How did companies implement the revised interest rate cuts?

For most companies, the transition to the revised rate was a difficult process. After Prime Minister Narendra Modi announced the GST revision plan on August 15, retailers stopped buying stock in the first few weeks of September in anticipation of lower rates. The transition led to short-term trading disruptions as the channel adjusted to new pricing and cleared old stock.

Britannia said channel destocking and delayed consumer purchases impacted revenue by 2-2.5% during the quarter. Volumes fell 3% year-on-year in the period, according to estimates by analysts at Jefferies. The company made grammage increases ( ₹5-10 packs) and reducing product prices to reflect the advantage.

Godrej Consumer has implemented a combination of pack weight changes and price reductions. The company reported a 3-4% increase in standalone sales revenue and a 2% decline in its personal care business (soaps, deodorants and hair dye) for the quarter, primarily due to the transition.

Hair oil and shampoo maker Dabur India has conveyed the benefits through price reductions and weight changes; This led to a temporary slowdown in sales in September as trading partners anticipated lower retail prices.

Tata Consumer Products Ltd, which sells tea, coffee and branded kitchenware, said its food and beverage portfolio, including Capital Foods, Organic India and Tata Soulfull, was affected towards the end of the quarter, leading to a temporary “hiccup” in sales as buyers postponed purchases. The company noted that ready-to-drink beverages were largely unaffected due to their impulse-based nature and continue to deliver strong growth.

Tata Consumer has reduced prices on its packaged water range in the wake of GST. ₹10 bottles available now ₹9 and ₹20 bottles ₹18. Revenue for the September quarter increased the company’s 18% year-on-year.

When will normalization continue?

Companies expect demand to normalize by October and November. Most companies said stockpiling of goods for which rates have been revised will be completed in the ongoing quarter.

“We are monitoring inventory liquidation. The impact was not limited to September alone; there will be an impact that carries over to October as well, with the first 15-16 days also being affected due to GST,” Dabur India CEO Mohit Malhotra said in the earnings call on October 30.

Sudhir Sitapati, managing director and CEO of Godrej Consumer, said in the company’s quarterly earnings call on October 31: “I think this (restocking) will happen within the quarter. In fact, most of this has happened within the month, but absolutely everything will happen within the quarter.”

HUL expects normal trading conditions to resume in early November once new prices stabilize.

Speaking in HUL’s post-earnings call on October 23, Ritesh Tiwari, CFO, said, “This disturbance will continue in trade till early November as there will be multiple prices in the market (old MRP will be sold at new GST, new MRP will be sold at old grammage, etc.). After that, we expect prices to stabilize and normal trading conditions to return.”