What is the projected volume contraction for India's cigarette industry?

The cigarette industry is expected to see a 6-8% volume contraction in the next fiscal year.

How will the new excise duties affect cigarette prices?

Mid to premium cigarettes may see up to a 25% increase in their Maximum Retail Price (MRP) due to higher excise duties.

Will the new tax increases impact cigarette companies' financial health?

Despite a projected 200-300 basis point decline in EBIT margins, companies are expected to sustain healthy credit profiles due to strong liquidity and minimal debt.

Home / Business and Economy / Cigarette Volumes to Shrink 8% Amidst New Taxes

Cigarette Volumes to Shrink 8% Amidst New Taxes

28 Jan

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Summary

Cigarette industry expected to contract 6-8% next fiscal due to excise duties.
Mid to premium cigarettes face higher excise duty impacting MRP by 25%.
Companies' healthy liquidity and low debt will sustain credit profiles.

Cigarette Volumes to Shrink 8% Amidst New Taxes

The Indian cigarette industry anticipates a significant volume contraction, estimated between 6-8%, in the upcoming fiscal year. This downturn is a direct consequence of additional excise duties and an increased Goods and Services Tax (GST) rate, both implemented from February 1.

New excise duties will vary based on cigarette length, with mid to premium segments (over 65 mm) facing Rs 3.6-8.5 per stick, and mass segments (under 65 mm) Rs 2.05-2.1 per stick. The GST on the final price will also rise to 40%.

While duty hikes are proportionally lower for the mass segment, which constitutes 40-45% of volumes, manufacturers may absorb some costs due to its price-sensitive nature. However, the mid to premium segment, facing up to a 25% increase in Maximum Retail Price (MRP), is expected to pass on the impact to consumers.