Cigarette sales will surpass pre-pandemic levels thanks to a stable tax system and increased office mobility

NEW DELHI: Increased outdoor mobility and stable tax system will light up sale of cigarettes volume by 5-6% year-on-year this fiscal year, helping it surpass pre-pandemic levels. With expected sales of 93 billion sticks, the volume of the organized cigarette industry will be 3% higher than in fiscal 2020, according to an analysis by crisis.
But higher input prices will shave 100 to 150 basis points (bps) off manufacturers’ gross margins.
“The cigarette sales volume run rate exceeded pre-pandemic levels in the fourth quarter of last fiscal year as the impact of the third wave was modest. occupation in workplaces, near-normal retail and leisure mobility and a stable tax regime over the past two years bode well for demand,” said Anand Kulkarni, Director.
In fiscal year 2021, these three mobility indicators remained below pre-pandemic levels, as evidenced by a 14% decline in cigarette sales volume. But last year, volume jumped 14%.
Since fiscal year 2013, levies, including excise duties and goods and services tax (GST), have increased significantly. This has apparently led to a gradual migration from duty paid cigarettes to other lightly taxed/escaped tobacco products such as illegal cigarettes and bidis. But with the stabilization of taxes over the past two fiscal years, the demand for duty-paid cigarettes has improved somewhat.
However, the profitability of cigarette manufacturers is expected to decline slightly this fiscal year as tobacco and packaging prices, which together account for 50-60% of total cost, increase, the report notes.
In addition, after the ban on single-use plastic, the outer packaging of cigarettes will have to switch to biodegradable materials, which will also increase costs and impact the gross margins of domestic cigarette manufacturers.
“Nevertheless, profitability will remain healthy this fiscal year, with an EBIT margin of 65%, due to the strong competitive advantage of established manufacturers and high barriers to entry such as established distribution channels and restrictions on advertising. Cigarette manufacturers’ credit profiles held up well given healthy cash generation. They also have strong balance sheets with negligible debt and strong liquidity of Rs 30,000 crore as of March 31, 2022,” said Gopikishan Dongra, Associate Director, Crisis odds.

Comments are closed.