ITC, Godfrey Phillips, VST Industries shares surge up to 12%, here is why

Shares of cigarette makers were witnessing strong buying interest on Wednesday, February 18, in an otherwise lacklustre session. Shares of Marlboro maker in the country, Godfrey Phillips, jumped as much as 12% to hit an intraday high of ₹2,314.30. Shares of ITC, the country's largest cigarette maker, advanced for a third straight session and rose as much as 1.6% to hit an intraday high of ₹330. VST Industries shares advanced as much as 3.3% to hit an intraday high of 240.

Shares of cigarette companies were witnessing buying interest after media reports suggested that the companies have undertaken price hike in range of 20%-40% to pass on the effect of additional excise duty on cigarettes and tobacco products.

An additional excise duty on cigarettes and tobacco products, and a health cess on pan masala, over and above the highest 40% GST rate came into effect from February 1.

The cess and excise levies replaced the existing 28% plus compensation cess, on such 'sin goods' which was there on these items since GST was rolled out on July 1, 2017.

Also, from February 1, a new MRP-based valuation mechanism was introduced for tobacco products (chewing tobacco, filter khaini, jarda scented tobacco, gutkha) whereby GST would be determined based on retail sale price declared on the package.

As per a report by global investment bank UBS, pricing approach by ITC may keep its volume & EBIT impact to be minimum going ahead.

UBS indicated a fresh round of cigarette price hikes, with distributor checks suggesting significant increases across key segments, particularly in premium categories.

According to UBS, the 84mm cigarette segment is expected to see the steepest hike, with prices likely to rise to ₹24 per stick from ₹17 earlier — a sharp 41% increase. This category has reportedly faced the highest tax hike and the full impact appears to have been passed on to consumers.

In the smaller 64mm segment, prices are expected to increase to ₹7 per stick from ₹5.90 earlier, marking a relatively moderate hike compared with premium offerings. The pricing of 69mm Gold Flake — a key volume driver in the mid-segment — is yet to be officially confirmed. The brand, currently priced at ₹9.50 per stick, is expected to see a hike to around ₹12, according to channel checks, UBS noted.

The move suggests a calibrated pricing strategy by cigarette manufacturers. While premium cigarette prices have been fully adjusted to reflect tax increases, price hikes in the more price-sensitive 69mm and 64mm segments appear to have been kept relatively moderate to protect volumes.

Meanwhile, Godfrey Phillips shares were witnessing higher than usual trading activity as trading volume spiked by 4.4 times to 22.45 lakh shares compared with an average trading volume of 5.06 lakh shares.

As of 11:25 am, Godfrey Phillips shares traded 11% higher at ₹2,303, ITC was up 1.4% at ₹329 and VST Industries traded 1.88% higher at ₹243.95.