Corporate tax rate cut done; now retail companies must watch out for these factors

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Updated: October 9, 2019 6:52:59 PM

Amid the ongoing consumer slowdown, several FMCG companies will find a respite in Finance Minister Nirmala Sitharaman’s corporate tax cuts, most likely recording higher earnings growth,

The company would build a 3.7 million sq ft mixed-use city centre anchored by a 2.4 million sq ft VR Retail Mall. (Representative image)Parle has said that the company stands to benefit out of the recent corporate tax revisions as the company’s effective tax rate will be lower.

Amid the ongoing consumer slowdown, several FMCG companies will find a respite in Finance Minister Nirmala Sitharaman’s corporate tax cuts, most likely recording higher earnings growth, a report said on Wednesday. While the sluggish sales situation has not taken a turn for good even in Q2FY20, “factoring in the recent tax cut and also adjusting for the higher taxes paid in Q1FY20, earnings growth will be higher at 31% in Q2FY20,” for Emkay coverage companies, broking and research firm Emkay said in the report. Among these are paint manufacturer Berger, which will outperform on the earnings front, the report added.

Painting the books green: Further, Asian Paints, Berger, and food FMCG firm Nestle will likely outperform as well “with close to double-digit volume growth,” while most if the Emkay’s coverage companies will witness volume growth to be in low-to-mid-single digit. The paint manufacturing firms are especially doing well as a continuation of past trends and Berger and Asian Paints are likely to report volume growth close to double digits, it said.

No more smokey future: For cigarette maker ITC, a stable performance of its cigarette sales will help the company report a volume growth of 5% and EBIT growth of 9%. Britannia and Colgate are also likely to be stable compared to the Q1 of this financial year as higher agri-prices are likely to limit margins of food companies like Britannia.

Parle – Not complaining anymore: Meanwhile, biscuit manufacturer Parle has said that the company stands to benefit out of the recent corporate tax revisions as the company’s effective tax rate will be lower in the range of 5-10%, Mayank Shah, senior category head, Parle Products told CNBC TV18 in an interview. Parle’s current effective tax rate stands in the range of 30-35%, which is considerably higher than the new effective tax rate of 25.17%.

Dabur – Bitter Medicine: One FMCG company which emerges a loser from the corporate tax cut is Dabur. “Dabur is likely to report sharper deceleration in volumes against a strong 1Q,” Emkay report said. Dabur will not witness any benefits of the newly established tax regime. Dabur is already availing fiscal benefits, bringing its effective tax rate lower than 25.17%, Lalit Malik, CFO, Dabur Ltd., told Financial Express Online in an interview recently.

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