Cigarette major ITC Ltd, which had increased prices of its flagship brand Gold Flake Kings by 7% prior to the Union budget, has now hiked rates by 8-20% across its portfolio.
A channel check in Mumbai suggested shortage in distribution of cigarettes as ITC is in the process of supplying the stock with revised prices. The company has an over-80% share in the cigarette market.
During the December quarter, the cigarette business accounted for more than half of ITC’s revenue and nearly 80% of its profit.
ITC had expected a 5-8% increase in excise duty in the budget, but the actual increase was 10-18%. Analysts were expecting a 6-8% increase in cigarette prices by ITC after the budget.
Gold Flake Kings contributes 7%, while Gold Flake Premium contributes 15% to ITC’s cigarette volumes. The price of these brands has been raised by about 7% and 20%, respectively.
The budget had lowered excise duty on filter cigarettes less than 60mm by 18% to Rs 669 per 1000 sticks, but ITC does not have any significant brand in this category.
The 60-70mm segment, which accounts for majority of its sales, has seen a 18% increase in duty to Rs 969/1000 sticks. Similarly filter cigarettes between 70mm and 75mm in length have seen a 11% in excise duty. These two segments, according to IDFC SSKI Securities, together account for nearly 70% of ITC’s cigarette portfolio.
Analysts feel that unlike in the past (when excise increases were sharper and volumes were flat), ITC is this time around guarded by a 8% growth in volumes. They do not expect any significant drop in sales for the company.
ITC’s immediate competitor, Godfrey Phillips India Ltd, that sells Four Square and Red and White brand of cigarettes, will also be compelled to take a price hike, though Godfrey has more pricing power than ITC.
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