The implementation of new GST slabs in September has led to disruptions in trade for leading FMCG companies, including HUL, Dabur, and Marico. Despite stable demand trends in July and August, these companies faced a decline in sales in September as consumers deferred purchases in anticipation of lower prices after the GST rate rationalization. The government’s decision to lower duties on most daily essentials, including food and personal care products, led to a temporary disruption in trade channels as distributors and retailers focused on liquidating existing higher-priced inventory.
Dabur reported a “short-term moderation in sales” in the second quarter, with its retail business seeing a temporary disruption due to the deferment of purchases by consumers. However, the company’s non-GST impacted brands, such as Dabur Honey and Anmol Coconut Oil, performed well. Dabur expects 60% of its India business to benefit from the lowering of GST, which will drive affordability and enhance purchasing power, boosting consumption across categories.
HUL, another leading FMCG major, witnessed a transitory impact on sales in the September quarter due to the disruption at distributors and retailers. The company expects this impact to continue into October as well. HUL owns popular brands like Lux, Rin, and Surf Excel, and has seen a postponement of ordering in anticipation of receiving new stocks with updated prices and lower orders across the overall portfolio.
Marico also reported a benefit from the GST rationalization, with 30% of its India business expected to stimulate demand and help in long-term growth. Despite the disruption, the company’s underlying volume growth remained in high single digits, albeit moderating sequentially. The GST Council’s decision to replace the four-slab structure with two broader rates of 5 and 18% has put most common-use items and food products under a lower tax rate, prompting consumers to delay purchases until the new rates took effect on September 22.
The FMCG companies expect growth in the second half of the fiscal year, helped by stabilization of prices and stimulation in demand from the lowering of duties. They also expect sentiment to gradually improve during the festive season and months ahead, aided by easing inflation, above-average monsoons, a healthy crop outlook, and policy stimulus. Overall, the disruption caused by the GST reforms is expected to be temporary, and the companies are optimistic about the long-term benefits of the new tax structure.