Cigarette stocks have staged a remarkable recovery in February, with Godfrey Phillips India leading the charge by surging 25% from its February low and recouping most of the 26% drop seen last month. According to Mint, the recovery follows reports that companies have implemented decisive price hikes to offset the impact of recent excise duty increases. ITC shares have also rebounded 7% from their February low, following a sharp 20% decline in January, while VST Industries has gained 5% so far this month and 9% from its February low. As per The Economic Times, the sharp rise follows media reports indicating that companies have raised prices to pass on higher costs to consumers.
As reported by Mint, ITC is implementing price hikes across brands with 20-40% increases expected, with fresh shipments reaching the market soon. According to UBS as quoted by CNBC TV-18, ITC's 84 mm cigarettes (KSFT segment) have seen the steepest tax increase, resulting in prices being raised to ₹24 from ₹17 earlier. The 64 mm cigarette is expected to be priced at ₹7 per stick from ₹5.9 earlier, while the 69 mm Goldflake is expected to be around ₹12 (given competing Marlboro is at ₹11.5). Godfrey Phillips has raised the price of Marlboro Compact from ₹9.5 per stick to ₹11.5 per stick. Retailers are also selling existing inventory at higher prices, contributing to the overall price increase strategy across the industry.
The developments follow the government's notification ending the GST compensation cess and rolling out a new tobacco tax regime on February 1, as reported by ETNow. Under the new framework, excise duties on cigarettes were restructured to a range of ₹2,050 to ₹8,500 per 1,000 sticks based on cigarette length, with a 40% GST on tobacco products. This has materially raised the overall tax burden on cigarettes, triggering concerns over demand, margins, and the risk of increased illicit trade. According to Mint, analysts have flagged that this duty hike may weigh on near-term margin due to price-led volume moderation.
Despite the recent recovery, Godfrey Phillips share price is down over 10% since the beginning of the year, as reported by The Economic Times. However, the recent turnaround has been sparked by reports that companies like ITC are looking to increase cigarette prices to mitigate the impact of such tax hikes. As per Vinod Nair, Head of Research, Geojit Investments Limited, "Cigarette stocks have staged a strong rebound after companies implemented decisive price hikes to pass on the recent tax increases." The price hikes are expected to limit the EBIT decline to 2% from expectations of 8-15% earlier, with the key being the inelastic nature of demand in premium and mid-segment categories.
Adding to the unease is a technical change in the National Calamity Contingent Duty (NCCD) announced in the Budget. According to The Economic Times, the government raised the statutory NCCD rate on tobacco products from 25% to 60%, with effect from May 1, 2026. However, the Budget also clarified that the effective duty rate will continue at 25% through a notification, meaning there is no immediate increase in tax outgo for cigarette companies. Despite the recent valuation correction, analysts see selective opportunities for investors, particularly in companies capable of sustaining margins and earnings through calibrated price actions.
