Ban on tobacco FDI might protect domestic industry from competition: Experts

The Centre’s decision not to allow foreign direct investment (FDI) in the tobacco trade, purportedly taken with a view to stifling the growth of the sin economy, could end up protecting the sector from competition from international brands, thus stabilising growth, say experts. 

“Particularly the Kings variety of the cigarette will be saved from any disruptions by global brands,” said an industry official. According to him, global brands operate only in the Kings (84 mm) and premium Kings brands while India is a mixed market for such cigarettes. 

In Kings, ITC commands the largest portfolio leading with brands such as Classic (Regular, Milds, Ultramilds), Gold Flake King (Regular, Lights, Ultra Lights), 555, India Kings, Insignia and others with a market share of 70 per cent in the duty-paid legal cigarette trade. Godfrey Phillips operates in the market with the iconic Marlboro brand through a licensing and manufacturing agreement with Philip Morris (Marlboro’s trademark owner). 

Industry officials are of the view that in all likelihood, ITC will be the largest beneficiary if the Union government decides to implement a blanket ban on FDI in the tobacco sector. 

“The market will remain status-quo and protected from any further disruptions from foreign brands in case FDI in trademark and licensing is prevented,” said Abneesh Roy, research analyst at Edelweiss Securities. 

However, the sector’s optimism is based on the fact that the policy will not be regressive in nature. 

“It is highly unlikely that the government will disturb the existing licence agreements and the FDI, which is already in place,” said the industry official cited above. 

In case the policy is regressive, ITC may feel most of the impact as British American Tobacco holds 30 per cent stake in the company through Myddleton Investment Company and Rothmans International Enterprises and has some licensed brands in its portfolio. In Godfrey Phillips, Philip Morris Global Brands Inc has a 25.1 per cent stake. 

Industry body Ficci estimates the Indian tobacco market at Rs 1,44,000 crore.