Shares of cigarette and tobacco manufacturers slid sharply on Thursday after the government set February 1 as the effective date for higher excise duties on tobacco products and announced a new health and national security cess on pan masala. The move delivered a fresh jolt to a sector already weighed down by heavy taxation.
Broad-Based Selling at Opening Bell
The decision, confirmed through late-night Finance Ministry notifications on Wednesday, triggered broad-based selling across tobacco counters at the opening bell. Losses deepened through the session as investors reassessed earnings prospects, market participants said.
ITC, Godfrey Phillips Lead Declines
ITC, the country’s largest cigarette maker and producer of the Gold Flake brand, fell nearly 10 per cent to Rs 363.95, hitting a fresh 52-week low in intraday trade. Godfrey Phillips India, which markets Marlboro in India, bore the brunt of the sell-off, slumping 17 per cent to close at Rs 2,289.65 after plunging as much as 19 per cent earlier. Shares of VST Industries ended marginally lower at Rs 255.15.
Fears Over Margins and Legal Volumes
Market participants said the reaction reflected fears that the revised tax regime would further squeeze margins and dampen legal volumes. India is estimated to have over 120 million smokers, and analysts caution that repeated tax hikes often encourage down-trading and illicit consumption.
Steeper Excise Structure Announced
Under the revised structure, cigarettes will attract excise duty ranging from Rs 2,050 to Rs 8,500 per 1,000 sticks, depending on length and the presence of filters. Smokeless tobacco products face even steeper levies, including an additional 91 per cent excise duty on gutkha and 82 per cent each on chewing tobacco and jarda scented tobacco.
New Valuation Norms, Additional Cess
The government has also introduced an MRP-based valuation mechanism, under which GST on chewing tobacco and allied products will be calculated on the retail price declared on the pack, aimed at curbing under-reporting. The health and national security cess will apply over and above the existing 40 per cent GST on pan masala and tobacco products, and 18 per cent GST on bidis.
Investor Unease Persists
“The uptrend in benchmark indices was capped as FMCG stocks declined following the newly imposed excise duty on cigarettes,” Vinod Nair, Head of Research at Geojit Investments, told The Free Press Journal. The sharp market reaction highlights persistent investor unease over regulatory certainty in a sector that remains a major contributor to government revenues.
