Informist, Wednesday, Feb 1, 2023

By Avishek Rakshit

KOLKATA – Despite a hike in levies announced in the Union Budget today, top cigarette companies, such as ITC Ltd, Godfrey Phillips India Ltd, VST Industries, may prefer to keep prices unchanged at least in their bread-and-butter budget segments, multiple sources said. The impact of the duty hike is seen only marginal and cigarette makers would prefer not to tinker with prices as that could hit their volume-driven growth, they said.

Indeed, if the companies were to hike prices, they would pick the pricier premium and luxury brands, where the hit can be easily absorbed, analysts said.

Several analysts said the impact of the 16% increase in the National Calamity Contingent Duty on cigarettes could be in the range of 1-3% on product prices. The duty accounts for a minor part in the sector’s overall tax structure, they said.

ITC declined to comment on the impact of the higher levy while repeated calls to an official at Godfrey Phillips went unanswered. 

An industry official said duty-paid cigarettes have seen volume-driven growth over the past four quarters, as prices were stable and they managed to snatch market share from the illicit cigarette trade. 

For instance, India’s largest cigarette maker ITC posted a strong 22% year-on-year growth in volume from the cigarette business in the September quarter. ITC will post results for Oct-Dec on Thursday. Godfrey Phillips, the second-largest player, also reported a 23% year-on-year volume increase in the December quarter. 

Sector analysts said ITC is likely to report a 7-12% year-on-year growth in volumes in the December quarter.

One can argue that volumes are increasing on the low base of last year, when the sector was yet to recover from the impact of COVID-19 pandemic, but the rise can be seen on a sequential basis as well, said a sector analyst, who did not wish to be named.

Godfrey Phillips has been consistently posting 6.7% sequential volume increase since January last year. 

ITC has reported a bounceback in cigarette demand to the pre-pandemic levels. In the first quarter of the current financial year, its volume grew 8% over the pre-pandemic levels, which accelerated to 15% in the second quarter. 

"At a time when sales volumes are on the rise, it may send out a wrong message to existing and new consumers if prices are increased," the industry official said. "However, this call has to be taken by companies individually."

Analysts said that the key reason for volume growth is the introduction of new brands and extensions of existing brands across different price points and the acquisition of new customers.

ITC has been extending brands like Gold Flake to new sub-brands like Gold Flake Gold Star, Gold Flake Neo, and others. The company has also introduced new brands like 'Wave' and 'Fab' that helped it acquire new customers.

Godfrey Phillips also rolled out a 69 mm variant of the Marlboro brand that is priced much lower than its standard 75 mm size. 

The industry official said that stagnant prices, more product variants and price points are helping consumers shift from the grey market cigarettes to the duty-paid ones, thereby benefiting companies like ITC, Godfrey Phillips, VST, and others. 

"If companies don't hike prices to make up for the increase in duty, there could be some borderline impact on their margins," said a second analyst who closely tracks the sector.

Before today's Budget announcement, Nuvama Institutional Equities had pegged ITC's operating margins to remain at 64% during the 2022-25 financial years.

A revision in these estimates is likely if ITC decides to skip passing on the increased duty to consumers.

A third analyst also said that after the Budget, consumers could get lured to the new income tax regime that will leave more cash in their hands, which may help cigarette makers see continued momentum in sales volume even if they decide to raise prices.

"Cigarette companies will need price hikes of 2-3% which is not much of an issue, given that for (past) three years, there has not been any increase for consumers," said Abneesh Roy, executive director at Nuvama. "It will be easily absorbed by consumers."

Sector analysts said if at all, the companies do decide to increase prices, it is likely to happen in the premium category of size 70-75 mm and above. A marginal rise in that segment can be easily absorbed as prices are already steep and it would not translate to much in percentage terms.

Budget and semi-premium cigarettes, sized between 64-69 mm, account for 60-70% of the sales volume, followed by the 75 mm king-size category.

Shares of ITC closed 2.6% up at 361.40 rupees on the National Stock Exchange, Godfrey Phillips ended 5.4% lower at 1,820.10 rupees, while VST Industries ended down 2.1% at 2,964.10 rupees.  End

Edited by Ranjana Chauhan

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (22) 6985-4000 /+91 (11) 4220-1000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2023. All rights reserved.

Informist, Wednesday, Feb 1, 2023

By Avishek Rakshit

KOLKATA – Despite a hike in levies announced in the Union Budget today, top cigarette companies, such as ITC Ltd, Godfrey Phillips India Ltd, VST Industries, may prefer to keep prices unchanged at least in their bread-and-butter budget segments, multiple sources said. The impact of the duty hike is seen only marginal and cigarette makers would prefer not to tinker with prices as that could hit their volume-driven growth, they said.

Indeed, if the companies were to hike prices, they would pick the pricier premium and luxury brands, where the hit can be easily absorbed, analysts said.

Several analysts said the impact of the 16% increase in the National Calamity Contingent Duty on cigarettes could be in the range of 1-3% on product prices. The duty accounts for a minor part in the sector’s overall tax structure, they said.

ITC declined to comment on the impact of the higher levy while repeated calls to an official at Godfrey Phillips went unanswered. 

An industry official said duty-paid cigarettes have seen volume-driven growth over the past four quarters, as prices were stable and they managed to snatch market share from the illicit cigarette trade. 

For instance, India’s largest cigarette maker ITC posted a strong 22% year-on-year growth in volume from the cigarette business in the September quarter. ITC will post results for Oct-Dec on Thursday. Godfrey Phillips, the second-largest player, also reported a 23% year-on-year volume increase in the December quarter. 

Sector analysts said ITC is likely to report a 7-12% year-on-year growth in volumes in the December quarter.

One can argue that volumes are increasing on the low base of last year, when the sector was yet to recover from the impact of COVID-19 pandemic, but the rise can be seen on a sequential basis as well, said a sector analyst, who did not wish to be named.

Godfrey Phillips has been consistently posting 6.7% sequential volume increase since January last year. 

ITC has reported a bounceback in cigarette demand to the pre-pandemic levels. In the first quarter of the current financial year, its volume grew 8% over the pre-pandemic levels, which accelerated to 15% in the second quarter. 

"At a time when sales volumes are on the rise, it may send out a wrong message to existing and new consumers if prices are increased," the industry official said. "However, this call has to be taken by companies individually."

Analysts said that the key reason for volume growth is the introduction of new brands and extensions of existing brands across different price points and the acquisition of new customers.

ITC has been extending brands like Gold Flake to new sub-brands like Gold Flake Gold Star, Gold Flake Neo, and others. The company has also introduced new brands like 'Wave' and 'Fab' that helped it acquire new customers.

Godfrey Phillips also rolled out a 69 mm variant of the Marlboro brand that is priced much lower than its standard 75 mm size. 

The industry official said that stagnant prices, more product variants and price points are helping consumers shift from the grey market cigarettes to the duty-paid ones, thereby benefiting companies like ITC, Godfrey Phillips, VST, and others. 

"If companies don't hike prices to make up for the increase in duty, there could be some borderline impact on their margins," said a second analyst who closely tracks the sector.

Before today's Budget announcement, Nuvama Institutional Equities had pegged ITC's operating margins to remain at 64% during the 2022-25 financial years.

A revision in these estimates is likely if ITC decides to skip passing on the increased duty to consumers.

A third analyst also said that after the Budget, consumers could get lured to the new income tax regime that will leave more cash in their hands, which may help cigarette makers see continued momentum in sales volume even if they decide to raise prices.

"Cigarette companies will need price hikes of 2-3% which is not much of an issue, given that for (past) three years, there has not been any increase for consumers," said Abneesh Roy, executive director at Nuvama. "It will be easily absorbed by consumers."

Sector analysts said if at all, the companies do decide to increase prices, it is likely to happen in the premium category of size 70-75 mm and above. A marginal rise in that segment can be easily absorbed as prices are already steep and it would not translate to much in percentage terms.

Budget and semi-premium cigarettes, sized between 64-69 mm, account for 60-70% of the sales volume, followed by the 75 mm king-size category.

Shares of ITC closed 2.6% up at 361.40 rupees on the National Stock Exchange, Godfrey Phillips ended 5.4% lower at 1,820.10 rupees, while VST Industries ended down 2.1% at 2,964.10 rupees.  End

Edited by Ranjana Chauhan

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (22) 6985-4000 /+91 (11) 4220-1000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2023. All rights reserved.

Informist, Wednesday, Feb 1, 2023

By Avishek Rakshit

KOLKATA – Despite a hike in levies announced in the Union Budget today, top cigarette companies, such as ITC Ltd, Godfrey Phillips India Ltd, VST Industries, may prefer to keep prices unchanged at least in their bread-and-butter budget segments, multiple sources said. The impact of the duty hike is seen only marginal and cigarette makers would prefer not to tinker with prices as that could hit their volume-driven growth, they said.

Indeed, if the companies were to hike prices, they would pick the pricier premium and luxury brands, where the hit can be easily absorbed, analysts said.

Several analysts said the impact of the 16% increase in the National Calamity Contingent Duty on cigarettes could be in the range of 1-3% on product prices. The duty accounts for a minor part in the sector’s overall tax structure, they said.

ITC declined to comment on the impact of the higher levy while repeated calls to an official at Godfrey Phillips went unanswered. 

An industry official said duty-paid cigarettes have seen volume-driven growth over the past four quarters, as prices were stable and they managed to snatch market share from the illicit cigarette trade. 

For instance, India’s largest cigarette maker ITC posted a strong 22% year-on-year growth in volume from the cigarette business in the September quarter. ITC will post results for Oct-Dec on Thursday. Godfrey Phillips, the second-largest player, also reported a 23% year-on-year volume increase in the December quarter. 

Sector analysts said ITC is likely to report a 7-12% year-on-year growth in volumes in the December quarter.

One can argue that volumes are increasing on the low base of last year, when the sector was yet to recover from the impact of COVID-19 pandemic, but the rise can be seen on a sequential basis as well, said a sector analyst, who did not wish to be named.

Godfrey Phillips has been consistently posting 6.7% sequential volume increase since January last year. 

ITC has reported a bounceback in cigarette demand to the pre-pandemic levels. In the first quarter of the current financial year, its volume grew 8% over the pre-pandemic levels, which accelerated to 15% in the second quarter. 

"At a time when sales volumes are on the rise, it may send out a wrong message to existing and new consumers if prices are increased," the industry official said. "However, this call has to be taken by companies individually."

Analysts said that the key reason for volume growth is the introduction of new brands and extensions of existing brands across different price points and the acquisition of new customers.

ITC has been extending brands like Gold Flake to new sub-brands like Gold Flake Gold Star, Gold Flake Neo, and others. The company has also introduced new brands like 'Wave' and 'Fab' that helped it acquire new customers.

Godfrey Phillips also rolled out a 69 mm variant of the Marlboro brand that is priced much lower than its standard 75 mm size. 

The industry official said that stagnant prices, more product variants and price points are helping consumers shift from the grey market cigarettes to the duty-paid ones, thereby benefiting companies like ITC, Godfrey Phillips, VST, and others. 

"If companies don't hike prices to make up for the increase in duty, there could be some borderline impact on their margins," said a second analyst who closely tracks the sector.

Before today's Budget announcement, Nuvama Institutional Equities had pegged ITC's operating margins to remain at 64% during the 2022-25 financial years.

A revision in these estimates is likely if ITC decides to skip passing on the increased duty to consumers.

A third analyst also said that after the Budget, consumers could get lured to the new income tax regime that will leave more cash in their hands, which may help cigarette makers see continued momentum in sales volume even if they decide to raise prices.

"Cigarette companies will need price hikes of 2-3% which is not much of an issue, given that for (past) three years, there has not been any increase for consumers," said Abneesh Roy, executive director at Nuvama. "It will be easily absorbed by consumers."

Sector analysts said if at all, the companies do decide to increase prices, it is likely to happen in the premium category of size 70-75 mm and above. A marginal rise in that segment can be easily absorbed as prices are already steep and it would not translate to much in percentage terms.

Budget and semi-premium cigarettes, sized between 64-69 mm, account for 60-70% of the sales volume, followed by the 75 mm king-size category.

Shares of ITC closed 2.6% up at 361.40 rupees on the National Stock Exchange, Godfrey Phillips ended 5.4% lower at 1,820.10 rupees, while VST Industries ended down 2.1% at 2,964.10 rupees.  End

Edited by Ranjana Chauhan

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (22) 6985-4000 /+91 (11) 4220-1000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2023. All rights reserved.