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BW Businessworld

Where The Buck Stops

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You will have to shell out more when you go shopping, courtesy the excise hike from 10 per cent to 12 per cent and the increase in service tax.

Listen to these voices: "We will look at a price hike in select brands," says N.H. Bhansali, CEO of Emami. "At current levels, some amount of price increase will be seen," says P. Ganesh, chief financial officer at Godrej Consumer Products. Says Manoj Menon, an analyst at Kotak Securities: "It will require companies to take commensurate price hikes to pass on the impact, which will be challenging in an environment of inflation in input costs." A post budget report by Kotak Securities suggests the news will be negative for companies like Asian Paints, GSK Consumer and HUL .

But there is a silver lining. "Profit margins will not be impacted because of price hikes. Commodity prices are set to cool down and firms will retain margins," says Sanjay Manyal, research analyst at ICICI Securities. It explains why Milind Sarwate, group CFO at Marico, indicates a "preference to maintain prices and absorb excise duty increases on our own".

The going will be tough in consumer durables, too. "Prices will go up by 3 to 4 per cent this fiscal," says Manish Sharma, managing director (consumer products) at Panasonic India. For LCD & LED televisions, the company is quantifying the impact of increase in excise duty and removal of import duty on LCD panels. The last quarter of 2011 saw price hikes ranging from five to 10 per cent for most companies.

There's another dampener — real estate. According to Pinakiranjan Mishra, partner-retail & consumer products at Ernst & Young (E&Y), this will particularly have an impact in the metros and Tier-1 towns as consumers might be burdened with servicing their loans, interest rates on which don't seem to be coming down.

Rajan Divekar, senior director at Deloitte India, expects durables manufacturers to focus on promoting lower end and fast-moving models as the relief on the personal taxation front has been marginal. "Middle class consumers are unlikely to have additional household surpluses for purchasing new durables or upgrading models."

According to an E&Y report, the abatement on maximum retail price for computation of excise duty in this budget has been increased to 70 per cent from 55 per cent. "For the apparel industry, the effective rate of excise duty post-abatement has reduced by 1 per cent. But the hike in service tax will offset the gain", says Ashish Dikshit, president, Madura F&L. And while shoppers will pay more for what they buy, in a retail industry skewed towards discounting, the losses will have to be borne by the retailers and their suppliers. That's because retailers make money in end-of-season discount sales.

Suneera Tandon, Shrutika Verma and Vishal Krishna

(This story was published in Businessworld Issue Dated 02-04-2012)