Following allegations that firms have boosted prices to pass on greater taxes to customers, shares of cigarette manufacturers, including ITC, Godfrey Phillips, and VST Industries, surged strongly on Friday, rising up to 13%. Value purchasing at lower levels also contributed to the spike after a sharp correction brought on by the tobacco tax reform announced on December 31 and going into effect in February.
The FMCG giant ITC rose 6% to Rs 328 a share, while Godfrey Phillips surged up to 13% to an intraday high of Rs 2,240 on the BSE. On the BSE, VST Industries rose 6% as well, reaching a day’s high of Rs 243.
Cigarette manufacturers have introduced more expensive packs to the market, with price increases ranging from 15% to 30% for all goods, according to a CNBC TV-18 report. According to the article, Godfrey Phillips’ 97 mm cigarette pack is now priced at Rs 300, a 25% increase from its previous price of Rs 240.
In addition to a 40% GST, excise taxes on cigarettes have been restructured under the new tax system to vary from Rs 2,050 to Rs 8,500 per 1,000 sticks. The entire tax burden on cigarettes has increased dramatically as a result, which has raised questions about demand, profit margins, and the possibility of an increase in illegal commerce.
The Budget’s announcement of a technical modification to the National Calamity Contingent Duty (NCCD) has further agitated investors. With effect from May 1, 2026, the government increased the mandatory NCCD rate on tobacco products from 25% to 60%. Nonetheless, the Budget made it clear through a statement that the effective duty rate would stay at 25%, suggesting that cigarette companies’ tax outlays would not rise right away. Without requiring legislative changes, the action essentially builds headroom for a future raise.
Due to consistent performance in the tobacco industry and double-digit growth in FMCG-Others, ITC reported a 6.2% year-over-year increase in sales for the December quarter. With a 7% increase in volume, cigarette revenues increased by 8%.
However, the consumption of expensive leaf inventories caused the cigarette segment’s margins to decline 163 basis points year over year, falling to a multi-quarter low of 59.9%. According to management, the current crop cycle has seen a lowered price for leaf procurement, which may help margin recovery in the upcoming quarters.
ITC’s long-term growth prognosis is still intact, according to Axis Securities, even though additional taxes may put medium-term impact on cigarette volumes. The brokerage also mentioned the ongoing popularity of non-cigarette industries like FMCG, lodging, and agriculture.
