NEW DELHI: Shares of cigarette makers surged up to 4 per cent in trade on Wednesday even as the Finance Minister Arun Jaitley announced hiked excise duty on various length of cigarettes by 2.5 per cent to 6 per cent.
This was against a blended excise duty increase of 15 per cent, expected by Motilal Oswal Securities.
Illicit Cigarette market accounted for 21 per cent of the total consumption of cigarettes in F16. A sharp rise in excise duties in the past few years has pushed cigarette makers to raise product prices by 10-18 per cent every year. This has dented volumes for cigarette makers.
ITC surged 3.91 per cent to hit a high of Rs 268.15. This company had reported negative volume growth for the past three years.
“We expect ITC to implement a weighted average price hike of 14-15 per cent to pass on the excise duty increase. The company has already taken price increase of 15 per cent in key brands Gold Flake and Navy,” the brokerage said in a recent note.
Golden Tobacco shot up 3.95 per cent to Rs 63.20. VST Industries rose 4.17 per cent to Rs 2,500.
The announced hike in excise for FY18 is much in line with 10 per cent excise duty hikes announced on cigarettes of different sizes in the FY17 Budget. In FY16, the excise hike was 15-25 per cent, while in FY15 it was raised by 17-72 per cent based on various cigarette sizes.
Brokerage Morgan Stanley was expecting the Budget to provide signposts on measures to curb consumption of smokeless tobacco and bidis. It was expecting a benign tax policy for cigarettes.