The Hindu Business Line : ITC, Godfrey Phillips decline on excise duty hike

Kolkata, March 3 Market is groping in a smoke-haze of sorts to figure out and price in the possible injuries to the balance sheets of cigarette makers who produce non-filtered smoke sticks.

Of the four prominent players, non-filtered varieties provide lifeline for two – VST Industries and GTC. For the other two – ITC and Godfrey Phillips – this price sensitive and volume driven segment provides 15 to 25 per cent of the sales volumes, market observers said.

ITC, which depended the least on the non-filtered sticks in terms of percentage to total sales, declined on Monday by 4.53 per cent. While GTC moved down 10 per cent, VST was resilient and managed to finish flat. Godfrey Phillips declined by over 2 per cent.

According to Mr Arun Kejriwal of KRIS, the Budget proposal’s impact (steep hike in excise duty; hence a price-rise) on sales of an item, which is a matter of addiction, could be considered inelastic. “Even if the item is in price-sensitive segment, a mild price rise may not necessarily lead to buyers’ negative decision,” he added.

Mr Ajit Day of Dayco Securities also felt that in this situation, addictive loyalties might prevail. A few analysts, however, felt that the smokers may slip into cheaper tobacco products or may readjust to the change for the shake of loyalty or addiction or both.

“It is more of a play of psychology than economics,” said an industry insider. The jury may be out after a few months. In the meanwhile, some brokerages, such as Citigroup, Morgan Stanley and UBS, have downgraded income expectations or revised price targets for the cigarette stocks.

Some analysts, however, felt that upgrading non-filtered cigarettes into filtered ones did not pose much of a challenge for the manufacturers.

“A few makers of such variety has strong brands and could retain their share with filters too. However, constraints on official promotion could have an impact on the manufacturers’ marketing efforts,” they felt.

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