Cigarette Stocks Surge Up To 16% on Price Hikes; ITC, Godfrey Phillips Lead Gains Amidst Excise Duty Adjustments

Cigarette Stocks Rally on Price Hike News; ITC, Godfrey Phillips Lead Gains

Overview Indian cigarette manufacturers, including ITC, Godfrey Phillips India, and VST Industries, experienced significant stock price surges on Wednesday, February 18th. The rally was primarily driven by reports of substantial price increases implemented by these companies to counteract recent hikes in excise duties. This strategic move aims to protect profit margins and maintain EBIT (Earnings Before Interest and Taxes) per stick.

Key Developments

• Godfrey Phillips India saw its shares jump by approximately 15.88%, reaching intraday highs of ₹2,393.90. The company has reportedly increased the price of its Marlboro Compact cigarettes from ₹9.5 to ₹11.5 per stick.
• ITC stock also continued its upward trend for the third consecutive day, rising nearly 2%. As of 1.55 pm, ITC was trading at ₹331.15, up 1.75%.
• VST Industries experienced a gain of about 3%, with its stock trading at ₹243.74, up 1.77% as of 1.55 pm.
• A CNBC Awaaz report indicated that these price hikes are being rolled out across various cigarette categories to offset the impact of increased excise duties.
• Brokerage firm UBS, maintaining a ‘Buy’ rating on ITC Limited, noted that distributor checks confirm imminent price increases across product segments.
• UBS has adjusted its target price for ITC to ₹395 per share from ₹420, still implying a potential 21% upside from Tuesday's closing price of ₹325.45.
• Specific price adjustments mentioned include 84mm cigarettes in the KSFT segment expected to rise to ₹24 per stick from ₹17, and 64mm cigarettes likely increasing to ₹7 per stick from ₹5.9.

Business Impact The implemented price hikes are expected to bolster the profitability of cigarette manufacturers by ensuring that higher excise duties do not disproportionately erode their earnings per unit. This strategy allows companies to pass on increased costs to consumers while aiming to maintain or improve their EBIT margins.

Market Context Cigarette stocks demonstrated strong performance, with Godfrey Phillips India leading the gains, surging up to 16%. The positive market reaction reflects investor confidence in the companies' ability to manage cost pressures through pricing strategies and maintain their financial performance.

Industry Context The tobacco industry in India is subject to regular changes in excise duties, which directly impact pricing and profitability. Companies in this sector often resort to price adjustments to mitigate the effects of such regulatory changes and maintain their competitive standing.

Looking Ahead Further details on the pricing of specific variants, such as the 69mm Gold Flake, are anticipated. The market will likely monitor the impact of these price adjustments on sales volumes and overall consumer demand.