Smokers alert — cigarette prices in India may rise even further
- An estimated 8% hike is expected in each of the next two years until March 2021.
- Rising cost of tobacco leaves has added pressure on ITC to hike prices.
- But number of smokers in India seems to be coming down.
ITC Limited, which controls over three-quarter of India’s cigarette market, showed that it’s revenue from the cigarettes sales in the last nine months fell 15% compared to the same time a year earlier. However, the earnings before interest and tax went up 9%; and it was still below expectations.
Despite recent price hikes, ITC sold 8% more cigarette sticks in the last three months than last year’s winter. Broking house India Infoline believes there is room for further price hikes, an estimated 8% hike in each of the next two years until March 2021.
Cigarette prices have been consistently rising over the last decade, more so since 2014. This was largely due to rise in government levies that aimed at pushing people to ditch the stick. Companies then passed on the rise in duties to smokers.
Moreover, the rising cost of tobacco leaves has added pressure on ITC to hike prices. The cost of inputs, which includes tobacco, went up 20% in the last three months, according to company data.
On the other hand, the number of smokers in India has come down drastically in the last decade. According to one estimate, India will have halved the proportion of smokers in the twenty years by end of 2020.
But the rising profits of ITC show that those who continue to smoke are willing to pay more to fulfill their urge..
So while the last quarter’s profit margin disappointed ITC’s investors, there is still hope and that has helped the stock bounce a day after the earnings announcement.
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