Price increase brought on by spike in National Calamity Contingency Duty announced in Budget
Avishek Rakshit | Kolkata
Last Updated at February 11, 2020 22:24 IST
Following the hike in the National Calamity Contingency Duty (NCCD) announced in the Union Budget this year, market leader ITC increased cigarette prices by 10-20 per cent across some of its brands in all of its markets.
A rise in NCCD escalates taxes on cigarettes. Manufacturers have the option to either pass it on the consumer or absorb it.
“Prices of a number of brands have been revised,” an ITC spokesperson said.
This is the first hike in cigarettes after the Budget.
Sources said while the American Club Cool Fresh Taste saw the minimum hike of 10 per cent, from Rs 200 to Rs 220 for a pack of 20 cigarettes, the price of Navy Cut Filter rose by about 16 per cent, at Rs 80 for a pack of 10 sticks. Flake Filter has become costlier by 14 per cent at Rs 80, while prices of Flake Special Filter, Flake Blue Special Filter and Wave Cool Mint rose by 20 per cent.
Other brands that suffered a price rise were Gold Flake Super Star and Duke Special Filter.
Incidentally, it is one of the steepest price upsurges ITC took in the past 2-3 years. Last year, the firm increased the prices of Bristol, Capstan and Flake Excel by 7-14 per cent and also introduced hikes in some regional brands while in 2017, prices rose by 6-7 per cent across brands.
However, in 2016, the company took selective price increases across its cigarettes portfolio pass on the excise increase, making Classic and Gold Flake Kings brands more expensive by 13 per cent. In the year before prices went up by 12-21 per cent.
The hike this time exceeded the previously anticipated surge of 7-10 per cent which sector analysts were expecting after NCCD was revised.
Analysts reasoned that on a blended basis, there is likely to be an 11 per cent tax hike on the average as the dominant 64 mm (mini king size) has seen a sharper tax hike of 15 per cent while others like the king size and regular sizes have seen tax hike of 9-10 per cent.
According to Abneesh Roy, executive vice president of institutional equities at Edelweiss Securities, a seven per cent hike would have led to a 3-4 per cent decline in cigarette volumes.
The previous projection, however, is likely to be revised now.
ITC, which commands the leadership position in the cigarettes space with a 3/4th market share, has been raising concerns over the stress on its cigarettes business prompted by taxation and illicit trade.
After its third quarter results, ITC said that while the company continues to augment its product portfolio, “extremely stringent regulations along with a punitive and discriminatory taxation regime on cigarettes in recent years have had numerous negative, albeit unintended repercussions”.
It said that such a course has resulted in decline in legal cigarette volumes in favour of lightly taxed and tax-evaded tobacco products. Moreover, the absence of mandatory pictorial warnings on illegally traded cigarettes in the country has also added to the stress on the legal cigarette industry.
ITC also raised concerns that there has been widespread availability of illegal cigarettes and other tobacco products of dubious quality and hygiene to consumers at extremely affordable prices.
After its results for the third quarter of the current fiscal year, ITC said that the performance during the quarter reflects the persistent weakness in the overall demand environment, especially in rural markets and wholesale channel, tight market liquidity conditions and the increasing salience of illicit trade especially at the premium end.
During the nine months ended December 31, 2019, ITC posted a 6.31 per cent rise in its income from cigarettes, at Rs 17,928.69 crore, while profit from cigarette sales rose by 7.59 per cent to Rs 12,188.58 crore.
First Published: Tue, February 11 2020. 19:55 IST