Hindustan Unilever, the country’s largest consumer goods company, feels it’s too early to say whether the goods and services tax (GST) has sounded a ‘death knell’ for unorganised local players that have not been paying taxes.
It would take a few more quarters to see market shares shift to branded products from unorganised sector, Sanjiv Mehta, managing director at Hindustan Unilever (HULBSE 0.71 %), said on Tuesday. “People don’t just immediately close the business and run away; this is a big occupation and they would do their best to survive till it becomes extremely difficult.
I would say don’t write any obituary at this stage,” Mehta told analysts at an investors call to announce December quarter performance of the company. The maker of Rin detergent and Lux soap reported fastest sales volume growth in six years in the December quarter, pointing to a gradual revival of demand. “We will have to give it a year to see whether the real trend is shaping up whereby unorganised players who were not hitherto paying taxes are now finding it difficult to survive,” Mehta said.
For years, local brands have been nibbling away share from leading consumer product companies, especially in segments such as soaps, detergents, hair oil, tea and biscuits, as more than 500 unorganised players operate in these categories. Introduction of GST has made it difficult for companies to evade tax.
“…Some of the unorganised players could have difficulties to continue to compete in a sustainable manner,” HUL chief financial officer Srinivas Phatak said. “So, to that extent should it benefit some of us, definitely Hindustan Unilever given our brand strength and positions, the answer is yes,” he told investors. Analysts, however, said market share gains for branded businesses may not be immediate.
Due to GST-related timing restrictions on transactions, working capital requirements are likely to increase for most companies, as they may need to pay vendors before they can claim GST credits on sales to primary customers, UBS analyst Sunita Sachdev said in a recent report.