The share price of India-based tobacco manufacturer Godfrey Phillips is up by 20.81% over the past five days as the nation’s cigarette makers implement significant price increases to offset recent excise duty hikes. Raising Prices to Protect Profitability India raised the basic tax rate on cigarettes and tobacco products from 28% to 40% effective February 1 in a bid to discourage consumption and boost government revenue. India’s leading cigarette manufacturers are now taking action to protect their profitability by raising the prices of their products. CNBC Awaaz reported that Godfrey Phillips increased the price of Marlboro Compact from ₹9.5 per stick to ₹11.5 per stick. The company manufactures and distributes the leading cigarette brand in India under a licence agreement with Philip Morris International. The price hike in cigarette products will allow companies in the sector to preserve their Earnings Before Interest and Taxes (EBIT) per stick despite the added tax burden. Geojit Investments head of research Vinod Nair said that near-term margin pressures now appear more manageable with the price adjustments. ”December-quarter results indicate that the earlier weakness was largely tax-driven rather than reflective of any structural slowdown in demand. While higher retail prices could temporarily weigh on volumes, cigarette companies have historically displayed strong pricing power, allowing them to protect profitability even in elevated tax regimes,” Nair said , according to Business Today. Market’s Response The price hike appears to be spurring positive response from the market albeit distributors fear that raising the cost of cigarettes will lead to increased smuggling, proliferation of counterfeit products and other illegal trades. Godfrey Phillips hit a high of ₹2,635.00 on Thursday, up from the previous close of ₹2,477.70. At the time of writing, the stock is trading for ₹2,493.00, up by 0.62%.
