Indian Cigarette Sales Expected to Exceed Pre-Pandemic Levels
The Financial Express, citing a report by ratings agency Crisil, said cigarette sales in India are expected to reach 93 billion sticks this year due to a stable tax regime and increased mobility as pandemic restrictions ease. Covid-19 lockdowns caused cig
According to a research report by the rating agency Crisil, due to a stable tax regime and increased liquidity after the pandemic restrictions eased, cigarette sales in India are expected to reach 93 billion sticks this year.<\/span><\/div>
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The Covid-19 lockdown caused cigarette sales to drop from 90 billion sticks in 2020 to 77 billion sticks in 2021. With the easing of restrictions, cigarette sales recovered to 88 billion sticks.
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Higher production will help cigarette manufacturers cope with rising input costs, and Crisil expects this will reduce manufacturers' gross margins by 100-150 basis points.<\/span><\/div>
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Indian cigarette manufacturers use Flue-Cured Virginia (FCV) tobacco, which primarily grows in Andhra Pradesh, Telangana, and Karnataka. Due to untimely rainfall in December 2021 and January 2022, FCV prices have risen by 15% since last year.<\/span><\/div>
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Meanwhile, paper prices are expected to rise by 10% this fiscal year compared to 2020. The recent ban on single-use plastics in India has also increased product costs as cigarette manufacturers shift to biodegradable materials.<\/span><\/div>
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From 2013 to 2017, the cigarette consumption tax grew by 15.7% annually. In the fiscal year 2018, due to an increase in consumption tax and the transition to the Goods and Services Tax, the industry's tax burden further increased by 20%.<\/span><\/div>
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Despite these challenges, the financial situation of cigarette manufacturers seems to be good.<\/span><\/div>
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According to Crisil's Deputy Director Gopikishan Dongra, due to the strong competitive advantages of established manufacturers and high entry barriers such as entrenched distribution channels and advertising restrictions, tobacco companies may retain around 65% of their operating profit margins.<\/span><\/div>
