ITC Hikes Prices of its Two Most-selling Cigarette Brands

Source from:  Live Mint 03/24/2016

ITC Ltd, the country's largest cigarette maker, has increased prices of two of its most selling cigarette brands, Classic and Gold Flake Kings, by 12.84%. Packs with the new prices had hit stores on Tuesday night.

The Union Budget had proposed an increase in excise duty on tobacco products, excluding bidis, by 10-15%. The company is passing on the higher duty to customers with the new prices.

"Prices of few select brands have been revised," said an ITC spokesperson. The company is yet to decide on the quantum of price increase for other brands.

A pack of 10 cigarettes (Gold Flake Kings and Classic) now costs Rs.123, up from Rs.109 earlier, while a pack of 20 sticks is now priced at Rs.246 up from Rs.218 earlier.

The price hike is likely to hit sales volumes. ITC has already witnessed 11 consecutive quarters of falling cigarette volumes, according to a report by Abneesh Roy, analyst with Edelweiss Securities, published on 29 February. During the past year, ITC was hurt by the stiff increase in taxes on cigarettes. ITC's cigarette sales by volume fell 17% in the first quarter of the current fiscal from a year earlier, 16% in the second quarter and 4% in the third, according to Roy's report.

"The hike will have a negative bearing on ITC's cigarette volumes (expected 6-7% decline in cigarette volumes in FY17 versus 10% estimated decline in FY16 when weighted average excise hike was 13%)," Roy noted in the report.

According to industry lobby group The Tobacco Institute of India (TII), excise duty on cigarettes, at a per unit level, has gone up cumulatively by 98% since 2012-13. "The increase of 10% in duty rates announced in this year's Union budget will take up the cumulative duty impact since 2012-13 to 118%," Syed Mahmood Ahmad, director, TII, had said after the budget announcement.

Cigarette taxes (excise duty and state value-added tax) in India, at 6.5% of per capita GDP, are among the highest, TII said, referring to a 2015 WHO study. "Cigarette taxes in India are 14 times higher than the US, nine times Japan, seven times China, five times Australia and three times Malaysia and Pakistan," TII said.

The cigarette market in India recorded a compounded annual growth rate of 10.5% in value terms between FY02 and FY14, according to a report by UBS Securities India. ITC leads the market with a 78.5% volume, followed by Godfrey Philips Ltd (13.5%) and VST Industries Ltd (7%), the report added. Enditem