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Shares of Indian tobacco firms fell sharply on Thursday after the government announced a fresh tax hike on cigarettes, a move expected to raise prices for around 100 million smokers in the world’s most populous nation.
ITC, which makes Gold Flake and dominates the local market, slid 9.2%, while Godfrey Phillips India, the company that distributes Marlboro in India, plunged 14.1%.
ITC shares dropped to 365.50 rupees, their weakest level since April 2023, and were heading for their worst single-day performance in almost six years. Godfrey Phillips was on course for its biggest decline since November 2016.
The sell-off made ITC the top laggard on the Nifty 50 index and a major drag on the FMCG index, which was down 3.2% at the time of trading.
Late on Wednesday, India’s finance ministry announced a revised excise duty ranging from 2,050 to 8,500 rupees ($22.82–$94.60) per 1,000 cigarettes, depending on their length. The new rates will take effect from February 1.
Analysts at Jefferies described the tax increase as “a clear negative”, warning that it could reduce sales volumes and renew fears of market share losses to the illicit cigarette trade.
Smoking-related health problems continue to place heavy pressure on India’s healthcare system, prompting the government to introduce measures such as larger warning labels and regular tax increases to discourage tobacco use.
Although authorities did not clarify how the new duty would affect retail prices, analysts said manufacturers are likely to pass on the higher costs to consumers.
According to ICICI Securities, the revised duty represents a 22%–28% rise in total costs for cigarettes measuring between 75 mm and 85 mm in length.
“Cigarettes longer than 75 mm account for roughly 16% of ITC’s volumes and are likely to see price increases of 2–3 rupees per stick as a result of the levy,” they said.
The new tax will apply in addition to the existing 40% Goods and Services Tax, the order showed.
($1 = 89.8510 Indian rupees)
