Argus News - Cigarettes to Get Costly as ITC Shares Plunge after India Slaps New Cigarette Tax

New Delhi, Jan 1: Shares of India’s leading tobacco companies tumbled sharply on Thursday after the government announced a steep new excise duty on cigarettes, making them more expensive for the country’s estimated 100 million smokers.

ITC Ltd, the maker of popular brands such as Gold Flake and the dominant player in the Indian cigarette market, saw its stock fall 9.2%, closing at ₹365.50 — its lowest level since April 2023. The decline marked ITC’s worst trading day in nearly six years.

Godfrey Phillips India, the distributor of Marlboro cigarettes in the country, suffered an even steeper drop of 14.1%, its biggest fall since November 2016.

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The sell-off made ITC the largest loser on the benchmark Nifty 50 index, while also dragging down the FMCG index by 3.2%. Market analysts attributed the slump to investor concerns over the impact of the new tax on cigarette sales volumes and profitability.

Late Wednesday, the finance ministry notified an excise duty ranging from ₹2,050 to ₹8,500 ($22.82-$94.60) per 1,000 sticks, depending on cigarette length. The levy, effective February 1, comes on top of the existing 40% Goods and Services Tax (GST).

Brokerage firm Jefferies described the move as “a clear negative,” warning that higher duties could revive fears of consumers shifting to the illicit cigarette market. Analysts at ICICI Securities estimated that the duty would translate into a 22%-28% increase in overall costs for cigarettes measuring 75-85 mm. They noted that longer cigarettes, which account for about 16% of ITC’s volumes, could see price hikes of ₹2-₹3 per stick.

While the government has not specified the exact impact on retail prices, industry experts believe companies will be forced to pass on the higher costs to consumers. This could further dampen demand in a market already under pressure from health regulations and anti-smoking campaigns.

India has long struggled with the health and economic burden of smoking-related diseases. The government has introduced several measures to curb consumption, including larger health warnings on packaging and periodic tax increases. The latest duty hike is seen as part of this broader effort to discourage smoking and reduce its impact on public health.

Despite the sharp sell-off, analysts say the long-term outlook for ITC and other tobacco firms will depend on how effectively they manage pricing strategies and whether demand stabilizes after the initial shock. For now, investors remain cautious as the industry braces for higher costs and potential volume declines.