There was a tremendous rise in the shares of cigarette and tobacco products manufacturing companies ITC, Godfrey Phillips India and VST Industries on Wednesday. The rise came after reports that companies had recently increased cigarette prices to offset the impact of increased excise duty. Shares of Godfrey Phillips India closed 19.93% higher at ₹2,479.75 on the BSE. The stock touched its upper price band of ₹2,481.30 during the session. Shares of VST Industries closed 2.97% higher at ₹246.55, while ITC closed 2.21% higher at ₹332.50 per share, registering gains for the third consecutive session.
What do experts say
Vinod Nair, Research Head, Geojit Investments Ltd. said shares of cigarette companies have made a strong comeback after the recent price hike. Last month, widespread sales were seen across the sector due to increase in excise duty. He further said that the December quarter results indicate that the previous weakness was mostly tax based and was not linked to any permanent decline in demand.
Fear of temporary impact on volume
Nair said that while rising retail prices may have a temporary impact on volumes, cigarette companies have historically had strong pricing power, allowing them to maintain profitability despite higher tax rates. According to reports, leading cigarette makers Godfrey Phillips India and ITC have mitigated the impact of increased excise duty by increasing prices of their key brands.
The government recently increased GST on tobacco products from 28% to 40%, with additional excise duty implemented from February 1. A positive trend was also seen in the market. The 30-share BSE Sensex closed 283.29 points (0.34%) higher at 83,734.25.
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