Fast-moving consumer goods major Hindustan Unilever Ltd (HUL) plans to set up a new subsidiary that will invest in greenfield manufacturing in an effort to avail benefits of lower corporate tax rates on new manufacturing units.
The maker of Dove shampoo and Rin bar said the new subsidiary will have an authorised share capital of Rs2,000 crore and about Rs500-Rs800 crore will be invested initially to set up the manufacturing facilities for existing categories under the new entity.
“We are taking into account the whole thrust on ‘Make in India’ and also tax enabling provisions, which the government has created. In phase one, we are looking to invest between Rs 500 and Rs 800 crore in our existing categories but at this stage, we are not calling out the categories or where we are investing,” said Srinivas Phatak, chief financial officer, HUL. The government had slashed the corporate tax rate from 30 per cent to 22 per cent, and for new manufacturing entities the corporate tax was brought down to 15 per cent from 25 per cent earlier.
Any new manufacturing facility undertaken by HUL, which falls under the 22 per cent tax bracket, would attract a lower tax rate of 15 per cent. However, the company has a window to set up manufacturing units under the new subsidiary before March 2023. Phatak further said that the company would explore all possibilities in manufacturing under the new subsidiary that is expected to become operational in 12-18 months. It could mean that some of the products that are currently imported, could be manufactured locally. Besides, it also gives the firm an opportunity to look at new categories and new brands.
“When you combine the two (lowered tax and ‘Make in India’ push) it actually enables us to make investments higher than what we could have earlier done because the financial case becomes more attractive with a lower rate,” Phatak said, adding the new subsidiary that has been formed to leverage the growth opportunities in a fast-changing business environment will help HUL in becoming more agile and customer-focused. Currently, the Rs 38,000 crore company has more than 28 manufacturing facilities across the country and employs about 18,000 people.