Shares of major Indian cigarette manufacturers extended their losing streak for the second consecutive session on Monday, February 02, as investors reacted to the implementation of an additional excise duty that has led to significant price hikes for cigarette packs. The policy change, effective from Sunday, has raised minimum prices by ₹22 to ₹25 per pack of 10 sticks, with premium brands seeing even steeper increases.
Stock Performance Takes a Hit
In Monday's trading session, Godfrey Phillips shares fell by 8%, while VST Industries declined 2.7%, and ITC dropped 2.4%. This downward movement continues a trend that began in January when the government first announced the excise duty, which became effective on February 01. The market's concern centers on how these price increases will affect consumer demand and, consequently, company profitability.
Price Increases Across Popular Brands
According to reports, the price adjustments vary significantly by brand and cigarette length. Premium cigarettes measuring 76 mm in length are now expected to cost between ₹50 and ₹55 more per pack of 10 sticks. A notable example is ITC's popular mid-sized brand, Wills Navy Cut (76 mm), which previously sold for ₹95 per pack and is now anticipated to be priced around ₹120 per pack.
For longer 84 mm cigarettes, the price impact is even more substantial. Well-known ITC brands including Gold Flake Lights, Wills Classic, and Wills Classic Milds, which were previously priced at ₹170 per pack (10 sticks), are now expected to cost between ₹220 and ₹225 per pack. These increases represent a significant jump that could potentially dampen sales volumes.
January Performance Shows Steep Declines
The three cigarette stocks have remained under considerable pressure since the policy announcement. ITC's share price concluded January with a substantial 20% decline, while Godfrey Phillips shares fell by 26.3%, and VST Industries shares dropped 9% over the same period. These declines reflect investor apprehension about how the price hikes will impact future earnings.
Financial Performance Highlights
Despite the recent stock declines, the companies reported varied financial results for the December quarter:
- Godfrey Phillips, which owns cigarette brands including Four Square, Red & White, and Cavanders, reported an 8.5% year-over-year increase in consolidated net profit to ₹343 crore. Revenue from operations during the quarter reached ₹1,829 crore, representing a 15% increase from ₹1,589 crore in the same period last year.
- VST Industries, with a portfolio featuring brands such as Charminar, Charms, Special, Moments, and Total, experienced a 56% decline in consolidated net profit to ₹60 crore from ₹136 crore in the December 2024 quarter. Revenue from operations during this period remained nearly flat at ₹373 crore compared to ₹367 crore in Q3FY25.
- ITC, which generates 47% of its consolidated revenue from the cigarette segment, posted a consolidated net profit of ₹5,018 crore, largely unchanged from ₹5,013 crore in the same period last year. The company's consolidated revenue from operations stood at ₹21,706 crore, marking a 6.7% year-over-year increase from ₹20,349 crore reported in the June 2024 quarter.
Market Concerns and Future Outlook
The street remains concerned that higher cigarette prices will inevitably impact sales volumes, which could subsequently affect the profitability of these companies. With ITC deriving nearly half of its revenue from cigarettes, and the other companies heavily dependent on tobacco products, the excise duty implementation represents a significant challenge to their business models.
Investors will be closely monitoring consumer response to the price increases in the coming months, as well as any potential adjustments in company strategies to mitigate the impact on sales. The tobacco industry faces ongoing regulatory challenges, and this latest excise duty hike adds another layer of complexity to an already competitive market environment.
Disclaimer: We advise investors to check with certified experts before making any investment decisions.
