India: Cigarette Sales to be Hit on Likely Government Curbs

Source from:  New Delhi Television Limited (NDTV) (in)  08/20/2014

The Health Ministry's recommendations to curb tobacco consumption through plain packaging on cigarette packs, among other measures, if implemented will see cigarette companies like ITC's sales impacted, says brokerage firm Prabhudas Lilladher.

"Whatever steps the government is trying to implement... they are definitely going to impact the growth rate of cigarettes and more so if it is not applied to other forms of tobacco. So to that extent it will be dampener for the company (ITC - the largest manufacturer of cigarettes in India) at least in the medium term," Amnish Aggarwal, senior vice president, Prabhudas Lilladher told NDTV.

The other measures being considered by the Health Ministry include substantially increasing penalty on smoking in public places, raising the age limit on tobacco consumption from 18 years to 25, ban tobacco advertisements at the point of sale (signage at the shop).

"In cigarettes as such you cannot undertake any media advertising. Advertising which the companies usually do is at the point of sale, so to that extent plain packaging won't impact. But yes it is also a fact that the kind of packaging that cigarette packs have is a kind of an attraction to some of the new consumers," Mr Aggarwal said.

However, more than two-third of the cigarettes sold in India are sold in loose form, that is people usually tend to buy one or two cigarettes at a time, hence the impact would be limited but it would wrong to say that there will be no impact, Prabhudas Lilladher said.

Finance Minister Arun Jaitley had hiked the excise duty on cigarettes in the budget, ranging from 11 per cent to 72 per cent.

In the wake of the excise duty hike, ITC in August raised prices of select cigarette brands like Classic and Gold Flake Kings by up to Rs. 10 per pack.

While prices of Classic and Gold Flake Kings were revised from Rs. 85 to Rs. 95 for packs of 10, prices of Bristol Filter were hiked from Rs. 45 to Rs. 47, Capstan Filter from Rs. 39 to Rs. 47, Flake Filter from Rs. 39 to Rs. 48 and Flake Excel Filter from Rs. 39 to Rs. 45. However, prices of brands like Navy Cut at Rs. 69, Gold Flake Filter at Rs. 59, Gold Flake Premium Filter at Rs. 58 , and Scissors Filter and Flake Premium Filter at Rs. 50 were left unchanged.

The cigarette industry globally has been reporting decline in volumes over the last 10-15 years, Mr Aggarwal pointed out. The decline is owing to various global legislations and undertakings which the countries have implemented in an effort to reduce the consumption of tobacco. Enditem