CALCUTTA, June 15: ITC Ltd has spared its premium cigarette brands from the price hikes announced on Monday that follow the 6-11 per cent increase in excise on cigarettes effected by the the union budget for 1998-99. The annual excise burden has gone up by an estimated Rs 400 crore, according to company sources.The prices of the top three brands -- India Kings, Benson & Hedges Special Filter Kings and Benson & Hedges Lights Filter Kings -- have not been disturbed.
In the filter and non-filter categories the price increases vary from 3 per cent to a maximum of 10 per cent (which is mostly in the micro segment). Top company officials said increase in costs would be recovered from consumers provided they are "amenable to paying higher prices".
The last major revision was done in March 1997 when the prices were raised by nine per cent in the micro segment to 23 per cent in the filters segment (Bristol).
This time, generally sluggish economic conditions, competitive pressures and a high cost structuretogether have had a moderating influence on the price revision, which is effective from June 5, 1998.
"A rise or fall in cigarette sales volume in the current year would be dependent not only on prices prevailing in the market but also on the general economic condition of the country (particularly the agrarian economy," a company source said.
He said there were indications that in the current year the industry would see low growth in volumes primarily due to the "extreme price elasticity" of cigarettes which "interplays with other forms of tobacco".
Industry estimates show that annual cigarette sales (in value terms) grew 12.6 per cent in 1995-96, 7.7 per cent in 1996-97 and only one per cent in 1997-98.
During this period, the weighted average excise duty rate changes increased from 7 per cent in 1995-96 to 11.5 per cent in 1997-98.
The high incidence of excise (weighted average increase of 15.3 per cent) in the three lowest cigarette slabs (which contribute to 87 per cent of cigarette volumes) in1997-98 resulted in a less than proportionate increase of nine per cent in revenue, according to industry sources.
As a result, average capacity use of the industry has dropped to 45 per cent. Company sources said excise duties on micros have gone up by 67 per cent over the last couple of years, making this segment "vulnerable" and preventing any significant growth.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
