Laminated packaging tubes manufacturer Essel Propack Ltd (EPL) estimates 7-8% contraction in the demand of its products in the run up quarter to the GST (Goods and Services Tax) implementation due to cleaning up of pipeline inventory following variations in the effective tax levies.
Although the fineprint of the effective taxes is yet to be finalised which the GST Committee might do in May, yet the levies are expected to vary from the existing ones including excise and local taxes currently effective on manufacturing sector.
The domestic operations contribute around 40% of EPL’s annual turnover of Rs 2,185 crore (FY15-17) and the impact of the GST rollout is estimated to be seen on this segment of company’s business.
“Still we believe, there would be 7-8% contraction in demand of our products as consumer industries would prefer to clear their inventory before implementation of GST levies. The impact would be seen in the quarter of GST roll out,” said Ashok Goel, Vice Chairman and Managing Director, EPL.
While the government has already started registration of manufacturing and services units for the proposed GST roll out since July 1, a number of industries have urged the government for its implementation since September 1.
EPL with its market cap of Rs 3,895 crore, however, estimates a recovery in demand in the following quarter as its consumer industries would rush to build its pipeline inventory in addition to the regular consumption.
“This means, demand of our packaging products would suddenly increase in the next quarter of GST roll out as our consumer industries would require to build pipeline inventory also, apart from meeting its usual consumption. So, we would require additional production line for which we have geared up by installing new automated machines in many of our manufacturing locations. This means, the impact of 7-8% decline in demand in the first quarter of GST rollout would be nullified with the increase in demand during the subsequent next quarter. Ours is a pass on business. Any increase in the effective taxes would be passed on to consumers. So, there would no impact of on our annual financial performance for 2017-18 despite initial hit,” said Goel.