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Cigarette Volumes to Shrink 8% Amidst New Taxes
28 Jan
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.
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.
Industry EBIT margins are projected to decline by 200-300 basis points but are expected to remain robust. Strong liquidity, coupled with negligible debt among major players, will enable companies to sustain their credit profiles and continue product innovation.
