India
India’s smokers are favoring cheaper options such as chewing and leaf-wrapped tobacco over cigarettes, as rising taxes prompt British American Tobacco’s Indian associate to sell shorter sticks with lower duties.
“Earlier on, as the taxation was increased, the cigarette industry showed resilience. Now, it has suddenly begun to drop,” said Yogesh Deveshwar, chairman of Asia’s third-biggest listed tobacco merchant ITC Ltd. in an interview with Bloomberg TV India. “The tobacco consumption basket continues to grow, whereas the cigarette share continues to shrink.”
India’s government has raised taxes, required graphic warnings on packages, and barred smoking scenes in films as it seeks to reduce tobacco use. Duties on cigarettes have more than doubled in the past four years and there are signs smokers are becoming more price-conscious, according to IIFL Institutional Equities brokerage.
ITC share price plummeted on Feb. 28, after Finance Minister Arun Jaitley proposed raising duties again, this time by at least 15%.
ITC has begun to cut the size of some products to preserve margins as sales volume slumps, taking advantage of India’s tax system that hits longer cigarettes with higher taxes. The company has already shortened its discount Bristol brand cigarettes to 64 millimeters (mm) from 69 mm, lowering the tax without cutting the retail price. Manufacturers now pay a duty of 1.44 rupees (US$0.02) on each cigarette 65 mm or shorter. The rate is 1.9 rupees, or 32% higher, for cigarettes 65 to 70 mm.
ITC has tried to reduce its reliance on cigarettes over the past decade, diversifying into other consumer products such as soaps and snacks. While it has emerged as the nation’s second-biggest consumer goods maker in that time with a portfolio spanning foods, soaps, apparel, and incense, it still relies on tobacco products for profits. Cigarettes contributed 84% of the company’s operating profit in the year ending March 2014, down from 86% in the 2005 fiscal year.