Tobacco Stocks Stay Lit: ITC, Godfrey Phillips Gain Despite 40% GST Rate

Tobacco Stocks To Watch: Tobacco companies traded higher on Thursday after the GST Council announced changes in the tax structure for cigarettes.

Shares of ITC rose 1.53 per cent to Rs 417.80, Godfrey Phillips gained 1.52 per cent to Rs 10,352.30, and VST Industries climbed 1.26 per cent to Rs 272.55. However, NTC Industries fell 1.37 per cent to Rs 195.

The reforms move cigarettes to a 40% GST rate, up from 28%. However, the cess that was earlier charged will now be shifted to the National Calamity Contingent Duty (NCCD). Brokerage firm Emkay explained that this move is expected to keep the overall tax burden largely unchanged.

What Brokerage Said On Tobacco Stocks?

Emkay said, “For cigarettes, we see base GST rate increases, from 28% to 40%. We see the balance GST cess shifting to the central duty of NCCD. We expect tax incidence to be neutral.”

The brokerage also noted that the industry has seen a surge in legal cigarette volumes in recent quarters, which has supported tax collections for the government. “Given the volume surge in the industry, increased volume is likely to be beneficial for exchequers. While we cannot rule out the possibility of tax hikes, we believe the quantum as reasonable and having minimal impact on demand,” the report added.

One of the key risks to the sector is the possibility of large tax hikes in future. Emkay warned, “Any double-digit tax hike will lead to surge in the illegal product which is negative for consumers and exchequers.”

Despite the changes, most analysts believe that the GST 2.0 reforms are not a big threat to cigarette companies in the near term. ITC, Godfrey Phillips, and VST Industries are expected to continue benefiting from stable demand and high margins.

Also Read: FMCG Stocks: ITC, Britannia, Emami, Nestlé Shares Rise

The government’s decision to restructure taxes without sharply increasing the burden is seen as a balanced move. It ensures steady revenue for the exchequer while preventing sudden shocks to legal cigarette sales.

Market watchers say that ITC remains the most stable play in the sector due to its leadership position and diversified FMCG presence. Godfrey Phillips and VST Industries are also expected to see steady earnings growth, provided taxes remain stable.

GST Council Increased Tax On Tobacco Goods

The GST Council increased the tax on pan masala from 28 per cent to 40 per cent. Gutkha and chewing tobacco products like zarda have also moved from 28 per cent to 40 per cent. Cigarettes, cigars, and other manufactured tobacco products have been placed in the same 40 per cent slab.

Products like tobacco extracts, tobacco for inhalation, and reconstituted tobacco also now attract 40 per cent GST. This marks a big jump from the earlier 28 per cent rate.

An exception has been made for bidis. The GST on bidis has actually been reduced from 28 percent to 18 per cent. The Council noted that bidis are largely produced in the unorganised sector, and the rate cut will provide relief to workers and small producers.

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