Shares of cigarette makers ITC, VST Industries and Godfrey Phillips India fell on Thursday, owing to concern on regulation. This followed an Australian court approving a ban on logos in cigarette packs.
On Thursday, the ITC stock fell 3.59 per cent to Rs 258.2, while VST Industries shares declined 4.3 per cent to Rs 1,731.7 and the Godfrey Phillips India stock fell 1.20 per cent to Rs 3,166.6. The benchmark Sensex lost 0.4 per cent.
Australia’s apex court on Thursday dismissed a petition by global tobacco manufacturers, including Philip Morris, Imperial Tobacco and British American Tobacco, challenging the Australian government’s decision to fight tobacco consumption with plain packaging. The order, effective from December 1, would lead to manufacturers adopting olive green packets with graphic pictorial warnings. Trademark brand logos would be replaced with the brand name in a prescribed font.
ITC and GPI didn’t comment on the impact of the Australian court’s decision.
The court’s decision is expected to hit business in other countries as well. IDFC Securities stated at least 30 countries were following the development in Australia and once the move was implemented there, these countries were likely to follow suit.
IDFC has now turned bearish on ITC, the market leader. “The global tobacco industry is staring at a systemic risk with Australia, the UK, Canada and Russia taking stringent action, which may cap cigarette sales and dilute brand franchise (packs without logos and 40 per cent rise in tax a year). We believe as regulatory concerns escalate, global majors would be de-rated and this would have a rub-off effect on ITC. Adding to the woes is an increasingly disruptive tax environment for cigarettes in India,” stated an IDFC report. Currently, there are about 30 effective tax rates across the country.
However, some analysts believe India wouldn’t follow the global norms anytime soon, though cigarette packs in the country now carry pictorial health warnings.
Cigarette makers have maintained the legal domestic cigarette industry faces growing challenges from the illegal cigarette market. Between 2005 and 2010, while duty-paid cigarette volumes fell 4.4 per cent, duty-not-paid volumes rose 49.3 per cent.
