NEW DELHI, June 23: Stocks of toiletries and cosmetics majors reacted on Monday after the Ministry of Finance's announcement to levy a 50 per cent excise duty on the maximum retail price, beginning July 1. Although the fall was not sharp, the scrips lost in the range of 1-3 per cent.

The scrip price of market leader in this segment, Hindustan Lever Ltd (HLL) lost Rs 23 or 1.8 per cent on the Mumbai Stock Exchange (BSE) to end the trading session at Rs 1297. For fiscal 1996, soaps and personal products accounted for Rs 2365 crore of the company's total turnover of Rs 6600 crore.

Lakme, where perfumes, toiletries and cosmetics contribute substantially to the turnover, lost Rs 7 from its Friday close of Rs 460. Almost 100 per cent of the company's turnover of Rs 86 crore in fiscal 1996 came from the aforesaid segments.

The other scrips which lost on Monday were Godrej Soaps (2.06 per cent), Nirma (2.34 per cent), Colgate Palmolive (2.35 per cent) and Dabur India (0.4 per cent). The only contrarians in this band were Pond's India and Procter & Gamble. While Pond's continued to gain on expectations of a bonus, the scrip price of Procter & Gamble generally moved up by Rs 16.

The proposed excise duty will be levied on products like perfumes, deodorants, hair-care items, shaving products, bath oils and other toiletries.

The companies dealing in such products will be hit as they have an attractive packaging and huge ad-spend which substantially adds to the cost of the product. This burden is then passed-on to the consumers.

The 50 per cent excise will now mean a huge outflow as in many cases the actual value of the product is less than 50 per cent of the maximum retail price. Thus, the companies will have now no option but to scale down the MRP of their products, which in turn means a lower ad-expenditure and a cut in packaging costs. In case companies do not resort to a price cut, it will mean a squeeze on margins.

Most cosmetics and toiletries attract an excise duty of either 18 or 30 per cent, depending on the product.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.