Smokers hit hard as ITC plans to hike cigarette prices by up to 21%

KOLKATA: ITC is increasing cigarette prices by up to 21% in its sharpest hike at one go, to make up for higher excise duties proposed in the Union budget for the next fiscal.

The country’s largest cigarette maker has already commenced manufacturing of packs with the new prices, analysts said. They are expected to hit the market anytime between a few days to a couple of weeks, they said.

The most affordable segment of sub-65 mm cigarettes will see the maximum price increase of 16-21%, thanks to a 25% jump in their excise duty.

Prices of regular, long and king size cigarettes are being increased by 13-15%, after a 15% increase in excise duty, analysts said. (See graphic for brand-wise hikes.)

When contacted, a company spokesman declined to comment on increase in cigarette prices.

ITC’s share, which had crashed since Budget, gained on the news of price increases, closing 2.35% higher on the Bombay Stock Exchange on Thursday at Rs 346.25, while the Sensex gained by 0.95%

The market was expecting a much lower 10-12% increase in prices of cigarettes. Edelweiss Securities associate director Abneesh Roy said while the price hike was beyond what was expected, the brokerage expects ITC’s cigarette sales would decline, as per its earlier estimates, by around 7-8% in 2015-16.
ITC’s cigarette sales volumes are estimated to have declined a record 15% in the quarter-ended December.

Several retailers and pan shops have been charging 10-20% more for cigarettes from early this week.

However, ITC has issued an advisory that retailers are prohibited by law from charging above the maximum retail price printed on the packet and are liable to be prosecuted by the authorities.

The ITC spokesman said the company prints the MRP (maximum retail price) on the cigarette packages in compliance with the Legal Metrology (Packaged Commodities) Rules, 2011.

As and when the MRP is changed, the revised maximum retail price is printed on the packages.

“ITC sells the cigarettes to wholesale dealers on a principal-to-principal basis. The wholesale dealers, in turn, sell to secondary wholesalers from whom retailers buy for eventual sale to consumers. There are a number of retail outlets that prominently display price lists showing the MRP of the various brands for consumers’ benefit; there are also many fair-price retail shops that sell cigarettes at the maximum retail price,” the spokesman said.

The government has been increasing taxes on cigarettes for four consecutive years which has led to recurrent increase in prices.