ITC Has Biggest Drop in Nine Months on Cigarette Tax Increase

Source from:  Bloomberg 03/01/2010

ITC Ltd., Asia's second-largest tobacco company by market value, fell the most in more than nine months after India's government proposed increasing excise tax on some filter-tipped cigarettes by as much as 18 percent. ITC fell 6.2 percent to 232.25 rupees in Mumbai after declining as much as 7.6 percent. The government will raise the tax on filter cigarettes longer than 60 millimeters, Finance Minister Pranab Mukherjee said while unveiling the government's annual budget. The government proposed a tax cut in cigarettes not exceeding 60 millimeters. The Kolkata-based company, 32 percent owned by British American Tobacco Plc, earns more than 80 percent of its profit before tax from selling Gold Flake, Classic and other cigarette brands. The company, which also runs hotels and sells shampoos, doesn't offer cigarettes shorter than 60 millimeters. "They will have to increase prices by about 8 to 10 percent," said Abhijeet Kundu, an analyst at Antique Stock Broking Ltd. in Mumbai. "ITC has to bring in shorter length cigarettes to compensate for the fall in volume because of the tax increase." Excise tax on filter-tipped cigarettes longer than 75 millimeters and less than 85 millimeters was raised 11 percent to 1,959 rupees ($42) for a thousand sticks, while the duty for tobacco products between 70 millimeters and 75 millimeters was raised to 1,473 rupees for a thousand sticks from 1,323 rupees. The tax on filter-tipped and non-filter-tipped cigarettes less than 60 millimeters in length was cut to 669 rupees from 819 rupees for a thousand sticks, the government said. The duty for Filter-tipped tobacco products between 60 millimeters and 70 millimeters were increased 18 percent. "It's an extremely steep increase," ITC spokesman Nazeeb Arif said. "We are evaluating the impact on costs and will subsequently look at pricing strategy." Japan Tobacco Inc. is Asia's most-valuable cigarette maker, with a market value of $36 billion. Enditem