Overview
- India’s new regime for tobacco, effective February 1, replaced 28% GST plus cess with 40% GST and a length-based excise of Rs 2,050–8,500 per 1,000 sticks, lifting the overall tax burden.
- Channel checks report retail price increases of roughly 15–20% across many brands with larger hikes in premium SKUs, a strategy aimed at protecting EBIT and limiting volume losses.
- Shares surged on February 18 as price increases filtered through, with Godfrey Phillips closing up 20% at its upper band, ITC rising about 2% for a third straight session, and VST adding roughly 3%; the rally extended on February 19, taking Godfrey Phillips up about 31% over three days.
- UBS says premium segments have seen full pass-through and it cut its ITC target to Rs 395 while keeping a Buy, as brokers now expect a smaller EBIT impact of around 2% versus earlier 8–15% estimates.
- Analysts warn that higher prices could pressure demand and foster illicit trade, while a Budget change to NCCD enables future duty increases even as the effective rate remains 25% by notification for now.