Cigarette Stocks Rally After Price Hikes — Why ITC and Godfrey Phillips Are Surging
Cigarette stocks moved sharply higher after manufacturers pushed through steep price hikes to offset recent excise duty increases, signalling that the industry still retains significant pricing power despite regulatory pressure.
Godfrey Phillips India jumped as much as 16% intraday, while ITC edged higher as investors reacted to reports that companies have begun passing on higher taxes to consumers rather than absorbing the hit to margins. The move suggests profitability in the sector may remain more resilient than feared after the latest duty changes.
Price Hikes Signal Margin Protection
According to media reports, Godfrey Phillips raised the price of Marlboro Compact from ₹9.5 per stick to ₹11.5 per stick. Industry estimates indicate that a large portion of ITC’s portfolio may also see sharper-than-expected hikes.
Brokerage commentary suggests these increases could lift EBIT per stick and partly cushion the impact of higher duties. While some volume moderation is possible, analysts believe the margin impact could be contained if price pass-through remains effective.
Recent price revisions reportedly include:
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Premium variants seeing hikes above 40%
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Slim and value categories witnessing more moderate increases
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Strategic pricing to protect volumes in price-sensitive segments
This tiered approach indicates companies are trying to balance profitability with demand elasticity.
Also Read : Business Families Face Tax Scrutiny Over Overseas Assets — Why Notices Are Being Planned
UBS Stays Positive on ITC
UBS retained a ‘Buy’ rating on ITC, setting a target price of ₹395, implying meaningful upside from recent levels. The brokerage noted that distributor checks had already pointed to imminent price increases, particularly in segments that saw the steepest tax hikes.
According to UBS, price hikes appear to have been fully passed on in premium cigarettes, while remaining limited in lower-price segments. This calibrated strategy could help protect both volumes and margins.
The brokerage also flagged valuation comfort after the recent correction, calling the risk-reward attractive if pricing discipline holds.
Why the Market Is Reacting
The rally is less about a single day’s price move and more about what it signals:
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Companies still have pricing power in a highly taxed industry
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Profitability may prove more stable than expected
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Regulatory shocks are being absorbed rather than disrupting earnings
For investors, the key takeaway is that tobacco companies may continue to defend margins even in a tightening tax regime — a factor that often drives long-term sentiment in the sector.
What Traders Should Watch Next
The next test will be demand response. If volumes hold steady despite higher prices, the sector’s earnings outlook could improve. But any signs of demand weakness may quickly reverse sentiment.
Traders will also track:
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Further price revisions
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Volume trends in coming quarters
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Policy signals around tobacco taxation
For now, the market appears to be rewarding decisive pricing action and margin visibility.
