ITC, Godfrey Phillips and VST Industries
On Friday, there was a tremendous rise in the shares of cigarette manufacturing companies. Shares of ITC, Godfrey Phillips and VST Industries jumped up to 13%. This rise in the market came after the news that after the recent tax increase, companies have increased the prices of cigarettes and passed the increased cost on to the customers. Along with this, value buying at lower levels also supported the shares after the sharp fall following the tax changes announced in late December.
Which stock is rising so much?
Shares of Godfrey Phillips rose 13% to Rs 2,240 in intra-day trade on BSE. Shares of ITC, one of the big FMCG companies of India, closed at Rs 328, up by about 6%. At the same time, shares of VST Industries also reached Rs 243 with a rise of 6%.
1530% increase in cigarette prices
According to the report of CNBC TV-18, new packs of cigarettes have been launched in the market at higher prices. Prices have been increased by 15% to 30% in almost all brands. For example, a 97 mm cigarette pack of Godfrey Phillips is now selling for Rs 300 instead of Rs 240, an increase of about 25%.
New tax structure became the reason
On December 31, the government had announced the new structure of cigarette tax, which has come into effect from February. Under this, the excise duty on cigarettes has been reduced from Rs 2,050 to Rs 8,500 per 1,000 sticks. Apart from this, 40% GST is also applicable. Due to this, the total tax burden on cigarettes has increased significantly, due to which demand, profits and illegal business are expected to increase.
Confusion on NCCD, relief for now
National Calamity Contingent Duty (NCCD) was also discussed in the budget. The government has increased its statutory rate from 25% to 60%, which will be applicable from May 1, 2026. However, the government has clarified that through notification the effective rate will still remain 25%. This means that at present there will be no additional tax burden on the companies, but the way is open to increase the rate in future.
ITC results and further picture
ITC’s income increased by 6.2% on an annual basis in the December quarter. Income from cigarette business grew by 8%, which was contributed by 7% volume growth. However, the margin of the cigarette segment declined to 59.9%, which is the lowest level in the last several quarters. Axis Securities believes cigarette sales may come under pressure in the medium term, but ITC’s long-term growth story still remains strong, especially in the FMCG, hotel and agri businesses.