The revenues of the cigarette companies in India will fall due to the ban on loose cigarettes since 70 percent of the volumes in India come from sale of loose cigarettes, she adds
Expert panel constituted by the Ministry of Health made three key recommendations. One was prohibition of single or loose cigarettes. Two was increasing the minimum legal age for sale of tobacco products and three increasing the fine or penalty amount for violation of certain provisions of the cigarettes and other tobacco products act.
All these recommendations have been accepted by the Ministry of Health, which will circulate a draft note and inter-ministerial consultations.
Will these recommendations if accepted be a blow to the tobacco industry and ITC in particular?
According to Sagarika Mukherjee, Research Analyst, SBICAP Securities this would be a big negative for the whole cigarette industry both from sentiment as well as earnings perspective.
However, she thinks implementation of these regulations is difficult in India because 7-8 million outlets will have to be regulated very frequently and India does not have infrastructure to do that.
Implementation is going to be tough but if it does come through then it would not only adversely impact the volumes for the cigarette industry but also hit the government coffers going forward.
The revenues of the cigarette companies in India will fall due to the ban on loose cigarettes since 70 percent of the volumes in India come from sale of loose cigarettes, she adds.
Moreover, 12 percent of the whole tobacco consumption is done by cigarettes in India a and the large chunk of the excise duty and all forms of taxes in the legal cigarette industry is actually paid by the cigarette industry only and not beedis or tobacco or other forms of consumption of tobacco, says Mukherjee