While the increase in cigarette prices may have impacted consumers’ pockets, the news proved to be a profitable deal for investors in the stock market. Strong buying was witnessed in tobacco company shares on Wednesday. Companies raised product prices following the hike in excise duty, and the positive impact was directly visible in the market.
Amidst this rally, the highest surge was recorded in Godfrey Phillips India shares. The company’s stock climbed 15.88% in intraday trading to reach ₹2,460.45. Even around 2:30 PM, the stock was trading with strong gains. Over the last month, this stock has shown a rise of more than 9%.
According to reports, the company has increased the price of Marlboro Compact from ₹9.5 per stick to ₹11.5 per stick. It is believed that this price hike will improve earnings per stick (EBIT), which could have a positive impact on the company’s revenue.
Rise in ITC Limited and VST Industries as well
Shares of tobacco sector giant ITC Limited saw gains for the third consecutive trading day. The stock climbed nearly 2% to reach around ₹331.
Meanwhile, VST Industries shares also recorded a rise of approximately 3%, clearly indicating a positive trend in the sector.
Brokerage firm UBS has maintained its ‘Buy’ rating on ITC. However, the target price has been cut from ₹420 to ₹395. Despite this, a potential upside of about 21% from current levels has been projected.
Calibrated Price Increase
According to reports, companies have increased prices thoughtfully. The burden of increased costs in the premium cigarette segment has been almost entirely passed on to customers, while limited hikes have been made in price-sensitive segments like 64mm and 69mm so that demand is not heavily affected.
For example, there is talk of increasing the price of 84mm KSFT cigarettes from ₹17 per stick to ₹24 per stick. It is believed that this strategy can strengthen the companies’ margins and EBIT growth while balancing sales volumes.
What are the signals for investors?
The strategy adopted by companies to protect margins even after the excise duty hike is being viewed as a positive signal for investors.
Analysts state that if there is no major decline in sales volume and demand remains stable, the tobacco sector may continue to outperform. Balanced price hikes and strong brand positioning can support corporate earnings, keeping the likelihood of strength in these stocks alive.
