Cigarettes became expensive, but investors’ faces lit up. There was a tremendous rise in the shares of tobacco companies on Wednesday. After the increase in excise duty, companies increased the prices, the direct benefit of which was visible in the stock market. The result was that the stocks of cigarette companies jumped by 16% and this sector showed a strong rally in the market. Godfrey Phillips India shares had the biggest rise. The company’s stock jumped 15.88% to ₹2,460.45 intraday. Even around 2:30 pm the stock was trading with a strength of about 19%. This stock has risen more than 9% in the last one month. According to reports, the company has increased the price of Marlboro Compact from ₹9.5 per stick to ₹11.5 per stick, which is expected to improve earnings per stick (EBIT).
ITC Limited and VST Industries also on the rise
Shares of sector giant ITC Limited also remained on the rise for the third consecutive day and rose by about 2% to reach around ₹331. At the same time, shares of VST Industries also registered a rise of about 3%. Brokerage house UBS has maintained ‘Buy’ rating on ITC, though reduced the target price to ₹395 from ₹420. It is still estimated to have a potential rise of about 21% from the current level.
Calibrated increase in prices
According to reports, companies have passed on the entire price burden to customers in the premium cigarette segment, while limited increases have been made in price-sensitive segments like 64mm and 69mm. For example, there is talk of increasing the price of 84mm KSFT cigarettes from ₹17 to ₹24 per stick. This strategy can support margin and EBIT growth while keeping volume impact low.
What signals for investors?
Despite the increase in excise duty, keeping the margins of companies safe is being considered a positive sign for investors. Analysts believe that if volumes remain stable, this sector can perform strongly further.
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