ITC to increase prices for all major cigarette brands
Calcutta: actions of ITC Ltd surged 2.35% on Thursday, outperforming broader stock indexes, following the news that the prices of all its major brands of cigarettes rose from 13% to 21.3% following a sharp rise in prices. excise duty announced Feb. 28.
TICclosed actions ?? 7.95 more at ?? 346.25 each on ESB SA, while the Sensex stock market benchmark gained 0.95% to close at 28,930.41 points.
The price of BadgeâThe most expensive brand in the ITC team â is increased by 20%, and a pack of 20 will cost ?? 300.
A pack of 20 of Kings of India is to cost ?? 250, from ?? 220, and other 84mm cigarettes such as Gold Flake Kings, Classic and Benson and Hedges are to cost ?? 218 against ?? 190 currently.
The price increase is in line with the 15% increase in excise duties on this category of cigarettes.
The price of one of ITC’s most popular brands, Wills Navy Cut, has dropped from ?? 69 to ?? 78 for a 10-pack, an increase of 13%, which is the lowest among all of its major brands.
The price increase in the 64mm category is expected to be between 15 and 21.3%.
ITC declined to comment, saying the packs with revised prices have yet to be distributed.
Analysts believe the price hike is likely to lead to a further contraction in volume sales and lower margins, especially in the 64mm category.
Edelweiss SA securities estimates that ITC’s cigarette sales by volume will fall by 8% in fiscal 2016. Nonetheless, he said, segment operating profit will grow in the current year, but at a low modest 8%.
This will affect, to some extent, ITC’s ability to expand its other businesses, especially non-cigarette consumer goods business, as cigarettes still generate 80-85% of its profits.
In the last two budgets, excise duties on cigarettes were increased by 21% and 18%, respectively, forcing the ITC to raise prices. But as cigarettes get more expensive, smokers refuse to spit out higher prices. They are switching to cheaper brands or cigarettes smuggled into the country, or switching completely to other forms of tobacco.
The impact of this change in consumption patterns was most visible in the quarter through December, when ITC’s cigarette sales in volume would have declined 9% year-on-year. The trend is expected to continue for at least four years, according to an Edelweiss report released on Thursday.
The Tobacco Institute of India, a lobby group, had said in response to budget proposals that a further increase in excise duties would lead to further expansion of contraband sales to the detriment of compliant producers. He estimated the loss of revenue for the Treasury because of it at ?? 7,000 crores per year.
According to the Tobacco Institute, cigarette companies such as ITC contribute around 85% of government revenue to tobacco products, while cigarettes make up only 12% of tobacco consumed in India. He lobbied the government for a reversal of its cigarette tax policy, citing an unprecedented 7% drop in tax revenue between July and December last year.
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