Tobacco Stock in Focus After Signing Agreement to Manufacture Cigarettes and Other Products

Synopsis: Godfrey Phillips India Limited has entered a long-term manufacturing partnership to strengthen production capabilities, improve supply continuity, and support future operational expansion through a dedicated domestic manufacturing arrangement. 

The shares of this mid-cap company majorly engaged in manufacturing and marketing cigarettes and exporting of unmanufactured tobacco leaves and many more were in focus after the company signs long term agreement for the manufacturing of cigarettes and other products. 

With the market capitalization of Rs. 36,191 Crores, the shares of Godfrey Phillips India Ltd were trading at around Rs. 2320 per share which is 41.2 percent discount from its 52-week high of Rs. 3947 per share and is trading at a P/E of 23.8 whereas industry P/E stands at 15.2 

What is the NEWS

Godfrey Phillips India Limited has signed a Contract Manufacturing Agreement with Polisetty Somasundaram Tobacco Products (India) Pvt. Ltd. to manufacture cigarettes and other tobacco products for the company. Under this arrangement, Polisetty will manufacture products exclusively for Godfrey Phillips at its own manufacturing facility while following the specifications, standards, and quality requirements prescribed by the company. The production materials required for manufacturing will be supplied by Godfrey Phillips itself, allowing the company to maintain control over product quality and consistency.

The agreement is domestic in nature and has been signed for an initial period of 9 years, showing the company’s long-term approach toward strengthening manufacturing capacity and ensuring stable product availability in the market. Polisetty has been given a timeline of 12 months to establish the manufacturing facility and secure all required licenses and approvals to commence operations. To support the setup process, Godfrey Phillips may also provide machinery and equipment on a bailment basis for manufacturing use.

As part of the commercial arrangement, Godfrey Phillips will pay Polisetty a manufacturing fee consisting of both fixed and variable components during the duration of the agreement. According to the latest available audited financials for FY25, Polisetty reported revenue from operations of Rs. 186 lakhs and profit after tax of Rs. 164 lakhs. The company stated that the main objective of this partnership is to augment production capacity and ensure uninterrupted availability of products, which can help improve supply efficiency and support future business growth.   

About the Company and Financials

Godfrey Phillips India Limited is one of India’s leading tobacco companies with a strong presence across domestic and international markets. The company earns around 77% of its revenue from domestic tobacco operations, while international tobacco business contributes about 22%. The remaining 1% comes from other businesses, including Ferrero food products distribution. Godfrey Phillips has built a wide distribution network with more than 1,100 distributors and a field force of over 9,000 personnel. The company markets several cigarette brands and continues expanding its manufacturing and supply capabilities to strengthen market reach and operational efficiency. 

Year on Year analysis: Revenue from operations has increased from Rs. 1573 Crores to Rs. 1787 Crores, up 13.6 percent. Operating profit has increased from Rs. 269 Crores to Rs. 553 Crores, up 105 percent and net profit has increased from Rs. 280 Crores to Rs. 521 Crores, up 86 percent 

Quarter on Quarter analysis: Revenue from operations has decreased  from Rs. 1829 Crores to Rs. 1787 Crores, up 2.29 percent. Operating profit has increased from Rs. 380 Crores to Rs. 553 Crores, up 45 percent and net profit has increased from Rs. 343 Crores to Rs. 521 Crores, up 51.8 percent. 

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