Budget in mind, ITC ups flagship-cigarette price

ITC has hiked the price of its flagship cigarette brand Gold Flake Kings by 7-8%, which, experts see as a pre-emptive move before a possible hike in excise duties in the Union Budget on February 26.

A revenue-starved government may choose to hike excise duties on cigarettes by more than 5%, two analysts DNA spoke to said.

A vendor in Mumbai said ITC has increased the price of both Gold Flake Kings and Gold Flake Light from Rs 44 to Rs 47, while another said the pack will cost Rs 49 starting next week.

Tobacco prices have been looking up of late, but an analyst tracking the company said there is no severe pressure on the
raw material front to warrant a hike.

A  senior ITC spokesperson confirmed the price increase to DNA Money, but declined to divulge the exact extent or the reason for it.
ITC has more than 80% market share in India’s cigarette business.

Closest rival Godfrey Phillips India Ltd, which sells Four Square and Red & White brands of cigarettes, is not known to be hiking prices, according to vendors DNA Money spoke with.

ITC had last hiked the prices of Gold Flake in the fourth quarter of the last fiscal by around 10%. Analyst Sunita Sachdev of UBS Securities India said a 7-8% hike in prices adds about about 1% to the net cigarette revenues of ITC and an estimated 2-3% to Ebidta or operating profit.

“We estimate Gold Flake King-Size to contribute 7% to ITC’s cigarette volumes. We estimate the brand has grown by approximately 10% in volume terms in the nine months of the current fiscal,” she said in a note.

During the quarter ended December 31, 2009, ITC’s cigarette business contributed to more than half of its sales and nearly 80% of its profit.

In the first 9 months of the fiscal, cigarette sales volumes were up 10% for the company.