Hindustan Lever's earnings growth will be affected by the new 10 per cent tax on dividends announced yesterday by the finance minister, P Chidambaram.
Calculations based on 1995 figures show that Lever's benefit from the corporate tax cut and surcharge removal of Rs 24 crore will be partly neutralised by the outgo of Rs 14 crore it has to pay on its dividend payout of Rs 145.84 crore.
Without the dividend tax, future earnings would have jumped by 15 to 16 per cent. At present, it is expected to grow only between six to seven per cent.
More From This Section
However, the company will benefit from the 10 per cent cut in excise duty on cosmetics and personal care products and the two per cent cut in excise duty on soaps from 20 to 18 per cent.
In a statement, K B Dadiseth, chairman of Hindustan Lever said the reduction of excise duties on consumer goods will benefit people at large through price reductions, yet will ensure full revenue generation for the government because markets will grow further and lend buoyancy to revenue generation."
The personal care products has been witnessing steady 25 per cent growth since excise duties were slashed from 70 to 40 per cent two years back. Of this, the shampoo market has seen explosive growth of nearly 35 per cent as falling prices spurred consumer demand. Industry sources and analysts say the scenario is likely to be repeated with personal product majors like Hindustan Lever, Procter & Gamble, Colgate-Palmolive and Lakme Ltd cut prices to increase demand.
The dereservation of the ice-cream industry will give HLL a chance to enter this sector with its own units.
Currently, Lever makes frozen desserts at it 16 lakh litre plant at Nashik, Maharashtra.
Under the erstwhile government policy, ice-creams made from milk and cream were reserved for the small scale sector, while frozen desserts, made from vegetable fat, were open to everybody else.
Analysts say Lever can now exploit the growing demand for milk and dairy based ice-creams by setting up its own manufacturing units. Recently, a lot of players like Vadilal of Mumbai and Ahmedabad, Amul ice cream, and Mother Dairy ice-cream of Delhi have been growing their market shares by focusing on the cream content in their products.