Consumer goods companies across the country are finally witnessing stabilization in their operations, months after changes to the GST structure were announced. Supply chains and inventories have returned to normal after the post-reform adjustment period, making way for a recovery in demand from the next quarter. Executives of major FMCG and consumer-facing companies said production levels, which were curbed during the tax transition, have now returned to normal. According to an ET report, companies such as Dabur, Emami, AWL Agri Business, Zydus Wellness, Godrej Consumer Products and Parle Products are operating their manufacturing units at full capacity as they rebuild their inventories to meet the expected demand.
Why did the FMCG engine slow down after GST cuts?
The sector faced disruption after GST rates were revised from September 22, introducing lower taxes on a range of everyday items such as soaps, shampoos, toothpaste and groceries. While the move was aimed at supporting consumption, companies and their trading partners had slowed operations during the transition due to price adjustment requirements, packaging changes and uncertainty among distributors and retailers. Retailers had reduced their orders during the GST transition to avoid blockage in working capital as price adjustments were still being worked out. This led to a temporary decline in production across the FMCG sector. Now that the revised prices are in effect, stocks are being replenishedHowever, the industry is getting back on track. Mayank Shah, vice-president, Parle Products, said inventory levels are returning to normal as new packs reflecting the changed prices are coming into the market. “We expect the full benefit of GST rationalization in demand and sales to be visible from the January-March quarter,” he said.Emami vice-chairman Mohan Goenka told ET that the camp conditions have now completely stabilised. “Inventories have normalized, delivery flows are smooth and there are no interruptions in availability. Overall, operations are back to normal,” he said. Tarun Arora, CEO, Zydus Wellness, also said that the challenges related to legacy pricing and packaging have been largely resolved. There was initially a reluctance among sales partners to accept products with old prices, then confusion arose due to packages that were printed with both old and changed prices. “Those issues are mostly streamlined now,” he said. During the transition, several companies had to temporarily move away from standard prices such as Rs 5, 10, 15 and 20 and instead opt for unusual prices such as Rs 4.70, 9.80 and 14.20 to accommodate the tax changes on existing inventory. This created difficulties for kirana stores. However, current stocks are at known price levels and companies are increasing pack sizes to pass on the GST benefit.
What’s Next – Navigating GST Rate Cuts
Dabur India expects performance to improve in the second half of the fiscal. Rehan Hasan, head of sales at the company, said Dabur is targeting mid-to-high single-digit growth in the remaining months. “Trade disruptions due to GST have now subsided and we are already seeing an increase in demand. Rural demand continues to grow faster than urban India. However, demand growth in urban markets is mainly driven by modern trade and e-commerce,” he told ET. Sudhir Sitapati, managing director, Godrej Consumer Products, said the sentiment in the industry has turned positive after stabilization. “The entire industry is mostly optimistic about the demand growth post GST 2.0. It is a bit early to tell but in a few months, January-February, we should see strong demand,” he said. Higher production volumes are also reflected in input demand. AWL Agri Business, a major edible oil supplier, said consumption by food businesses has returned to normal levels. “Corporate oil consumption has returned to normal and is growing, be it biscuits or namkeen,” said Angshu Mallick, deputy chief executive officer of AWL Agri Business. An inventory correction can also be seen in durable consumer goods. Air conditioner makers, which struggled with weak sales earlier this year due to an unfavorable summer, are clearing excess inventory after the GST on air conditioners was cut to 18% from 28%. “The industry had 90 days of inventory, which is almost double the usual. It has come down, like in the case of Blue Star, it is now 50 days,” B Thiagarajan, managing director of Blue Star, told ET. With supply chains back on track and production operating at normal levels, companies expect the benefits of GST rate cuts to be reflected in sales in the coming quarters.
