Firms will evaluate impact before taking a call on price rise.
The Budget imposed an 11-18 per cent hike in duties on cigarettes, cigars and cigarillos. The finance minister has also proposed enhancement of excise duty on all non-smoking tobacco such as scented tobacco, snuff, chewing tobacco and others. In addition, the Budget introduced a compounded levy scheme for chewing tobacco and branded unmanufactured tobacco based on the capacity of pouch-packing machines.
A spokesperson for ITC, which commands 80 per cent market share in branded cigarette business in India, said, “The Budget has imposed a steep increase in duties. We are evaluating the impact on costs based on which we will take a call on pricing.” Cigarette sales were up 3-5 per cent over the past few quarters.
ITC had recently hiked the price of its flagship cigarette brand Gold Flake Kings by 7-8 per cent. “But Gold Flake Kings constitutes only 6 per cent of the entire portfolio of that brand and therefore, this price hike does not impact our revenues or help in tiding over the steep increase in duties in the Budget,” the ITC spokesperson said.
Analysts believe that excise is the most important factor for cigarette companies’ pricing strategy. Rajeev Dimri of BMR Advisors says: “This year, the category has been divided into two. Cigarette business as such will be heavily impacted and they may resort to increasing prices of their products. It may not impact the higher-priced products, but a huge population smokes the lower-priced products, which is where the volumes are.”
NS Mani, partner with Deloitte, says, “There are three changes in the Budget for tobacco. There is an increase in excise duty across the board on tobacco products, depending on the length of cigarettes and nicotine content. Tobacco companies normally pass on any changes in duties to consumers, so companies may not be impacted but end-consumers will."
