Cigarette stocks under pressure as Health & National Security Cess set to hit tobacco products

Synopsis: The Shares of ITC Ltd, Godfrey Phillips Ltd., and VST Industries Ltd are in the spotlight on  Monday, December 1, ahead of the commencement of the Winter Session of Parliament. The government is set to introduce the Health and National Security Cess Bill, marking a significant change in the taxation of cigarettes, gutkha, and pan masala.

According to sources cited by CNBC-TV18, the bill, scheduled to be presented on Monday, December 1, by Finance Minister Nirmala Sitharaman, proposes levying the cess based on the production capacity of manufacturers.

Impact on GST and Tax Rates

Currently, tobacco products attract 28% GST plus a compensation cess of 5%-290%, depending on the product. After the new cess, GST on these items will remain at 40%, with the rest covered by the new cess. The government also has the authority to increase the rates of these cesses or apply them to other products in the future.

How the Cess Works

The tax will be applied to the total production. For example, a machine producing 100 cigarettes per run, run three times a day, will be taxed on 300 cigarettes, and this cess will replace the existing compensation cess.

Here is the list of Tobacco Stocks Under Pressure

ITC Limited is an Indian multinational conglomerate with a diversified business portfolio including Fast Moving Consumer Goods (FMCG), Hotels, Paperboards and Packaging, Agri-Business, and Information Technology. Originally founded in 1910 as the Imperial Tobacco Company of India Limited, it is now a leading Indian private sector company headquartered in Kolkata.

With a market capitalization of Rs. 5,06,350.02 Crores on Monday, the shares of ITC Limited declined upto 1.5 percent, reaching a low of Rs. 398.30 compared to its previous closing price of Rs. 404.40.

VST Industries Ltd is a publicly listed Indian company primarily engaged in the manufacture and sale of cigarettes and unmanufactured tobacco products. Headquartered in Hyderabad, Telangana, the company has been a prominent player in the Indian tobacco industry for over nine decades. The Key brands include: Charminar, Charms, Special Edition, Moments and Total.

With a market capitalization of Rs. 4,328.91 Crores on Monday, the shares of VST Industries Ltd declined upto 0.6 percent, reaching a low of Rs. 252.60 compared to its previous closing price of Rs. 254.30.

Godfrey Phillips India Ltd. (GPIL), part of the Modi Enterprises, KK Modi Group, is one of India’s leading FMCG companies and a major player in the tobacco industry since 1936. Its portfolio includes popular domestic brands like Four Square, Red & White, Cavanders, Stellar, and Focus. GPIL also has an exclusive agreement with Philip Morris International to manufacture and distribute Marlboro in India.

With a market capitalization of Rs. 44,218.49 Crores on Monday, the shares of Godfrey Phillips India Ltd declined upto 2.1 percent, reaching a low of Rs. 2809.80 compared to its previous closing price of Rs. 2872.10.

Why It Matters for Investors

The shares of ITC, VST, and Godfrey Phillips earn a large part of their revenue from cigarettes, but their business models differ. ITC is diversified, with businesses in hotels, packaged foods, and agri-products, which helps cushion it against tobacco-specific risks. In contrast, VST and Godfrey rely heavily on tobacco, making them more vulnerable to regulatory changes, tax hikes, or shifts in consumer demand.

Written by Sridhar J 

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