Consumer goods companies across the country are finally seeing operations stabilising, months after changes to the GST structure were announced. Supply chains and inventory levels have returned to normal following the adjustment period after the reforms, making way for a recovery in demand from the next quarter. Executives from major FMCG and consumer-facing firms said that production levels, which had been curtailed during the tax transition, have now returned to normal. Companies including Dabur, Emami, AWL Agri Business, Zydus Wellness, Godrej Consumer Products and Parle Products are operating manufacturing units at full capacity as they rebuild stock to meet expected demand, according to an ET report.
Why FMCG engine slowed after GST cuts?
The sector faced disruption after GST rates were revised from September 22, with lower taxes introduced on a range of everyday items such as soaps, shampoos, toothpaste and food products. While the move was aimed at supporting consumption, companies and their trade partners had slowed operations during the transition due to repricing requirements, packaging changes and uncertainty among distributors and retailers. Retailers had reduced orders during the GST transition to avoid blocking working capital, as price adjustments were still being worked out. This led to a temporary production slowdown across the FMCG sector. With revised pricing now in place, inventories are being replenishedHowever, the sector is getting back on track. Parle Products vice-president Mayank Shah said stock levels are moving back to normal as new packs reflecting the revised prices reach the market. “We expect the full benefit of GST rationalisation on demand and sales will be visible from the January-March quarter,” he said.Emami’s vice chairman Mohan Goenka told ET that inventory conditions have now fully stabilised. “Stock levels have normalised, supply flows are smooth and there are no disruptions to availability. Overall, operations are back to business as usual,” he said. Zydus Wellness chief executive Tarun Arora also said that challenges linked to old pricing and packaging have largely been resolved. There was initial reluctance among channel partners to accept products carrying old prices, followed by confusion caused by packs printed with both old and revised prices. “These issues are mostly streamlined now,” he said. During the transition, several companies had to temporarily move away from standard price points such as Rs 5, Rs 10, Rs 15 and Rs 20, opting instead for odd pricing like Rs 4.70, Rs 9.80 and Rs 14.20 to accommodate the tax changes on existing stock. This created difficulties for kirana stores. Current inventories, however, are priced at familiar levels, with companies increasing pack sizes to pass on the GST benefit.
What’s next — Navigating after GST rate cuts
Dabur India expects performance to improve in the second half of the financial year. Rehan Hasan, sales head at the company, said Dabur is aiming for mid-to-high single-digit growth in the remaining months. “The trade disruptions due to GST have settled now and we are already seeing an uptick in demand. Rural demand continues to grow ahead of urban India. That said, the demand growth in urban markets is being primarily driven by modern trade and ecommerce,” he told ET. Godrej Consumer Products managing director Sudhir Sitapati said industry sentiment has turned positive following the stabilisation. “The entire industry is mostly bullish on the demand growth post GST 2.0. It’s a little early to say, but within a couple of months, by Jan-Feb, we should start seeing strong demand,” he said. Higher production levels are also being reflected in input demand. AWL Agri Business, a major edible oil supplier, said consumption from food companies has returned to normal levels. “Oil consumption by the companies is back to normal and growing, be it biscuits or namkeen,” said Angshu Mallick, executive deputy chairman at AWL Agri Business. Inventory correction is also visible in consumer durables. Air-conditioner makers, which faced weak sales earlier this year due to an unfavourable summer, are cutting excess stock after GST on ACs was reduced from 28% to 18%. “The industry had 90 days of inventory, which is almost double of the usual. It has come down, like in the case of Blue Star it’s now 50 days,” Blue Star managing director B Thiagarajan told ET. With supply chains back on track and production running at normal levels, companies expect the benefits of the GST rate cuts to begin reflecting in sales over the coming quarters.
