New Delhi, Sep 9 The rollout of GST 2.0 would add fresh fuel to consumption as mass consumption would follow the formalisation trend, while premium consumers would aspire for differentiated offerings, a report showed on Tuesday.
The report by Emkay Global Financial Services said that improving macro tailwinds continue to support the sector’s elevated valuations, even as growth support is still awaited.
“The anticipatory rally ahead of the GST 2.0 announcement was rewarding. As we factor in benefits and lift target prices of select stocks, our stock calls remain firm,” the report added.
Proposed GST rates imply weighed GST of 6 per cent for food and beverages and 12 per cent for home and personal care (HPC).
Under GST 2.0, broad rate-rationalisation was seen across food and essential personal care categories.
The GST Council largely kept home care products under the 18 per cent slab, while daily-use personal care items saw rate cuts, with discretionary items remaining at 18 per cent.
“Our analysis shows that the organised food and beverage segment, with a total addressable market of Rs 7 trillion (90 per cent penetration; 30 per cent organised), is likely to see a reduction in the weighted GST rate from 10 per cent to 6 per cent," said the report.
Similarly, organised home and personal care segment, sized at Rs 2 trillion (65 per cent penetration; 67 per cent organised), may experience a 5 ppt (percentage point) reduction to 12 per cent.
“Within FMCG, the top five categories benefiting from the reduction are soaps, oral care, hair care, biscuits, and salty snacks. We see reduction in personal care products addressing slowdown concerns, while the benefits for biscuits and salty snacks are expected to foster formalisation,” the report noted.
In the past year, regulatory support for the sector was significantly enhanced, setting the stage for accelerated growth. Companies with superior execution and portfolios, which are aligned with consumers’ needs, are expected to gain the most.
“Our covered companies stand to benefit from accelerated formalisation, though strong execution will be crucial to fend off competition from new-age brands. The anticipatory rally ahead of the GST 2.0 announcement proved to be rewarding,” the report highlighted.
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