Higher tobacco taxes hit ITC, Godfrey Phillips and VST’s Q1 underlying sales
A 40% GST rate and new excise duties pushed cigarette pack prices up by about ₹22–25 per 10 sticks, pressuring volumes, net revenue and profit. ITC’s reported cigarette revenue rose on duty pass-through, while revenue excluding duties fell 31.45%.
What happened
Higher 40% GST and new excise duties hit underlying Q1 cigarette sales, volumes and profitability at ITC, Godfrey Phillips India and VST Industries, despite
Key facts
- GST on cigarettes and tobacco raised to 40% in February
- Additional excise duty: ₹2,100-8,500 per 1,000 sticks
- ITC Q1 FY27 cigarette revenue: ₹16,596.67 crore, up 73.71%
- ITC cigarette gross revenue excluding duty pass-through: ₹3,769.11 crore, down 31.45%
- Godfrey Phillips Q1 consolidated net profit: ₹198.39 crore, down 44.3%
- Godfrey Phillips net revenue excluding excise: ₹1,206 crore, down 18.8%
- VST Q1 profit after tax: ₹42.42 crore, down 24.42%
- VST net revenue: ₹256 crore, down 13.5%
- VST cigarette volume: 611 million sticks per month, down 14%
- Cigarette prices increased about ₹22-25 per 10-stick pack
Why this matters
The tax shock raises the appeal of diversification into non-cigarette FMCG, nicotine alternatives and adjacencies that reduce dependence on increasingly price-sensitive cigarette demand.
What to watch
- Sequential cigarette volume trends in the next two quarters, especially whether VST's 14% decline moderates.
- Net revenue excluding duties versus reported revenue, which will show whether price pass-through is masking underlying demand erosion.
- Evidence of downtrading to bidis, chewing tobacco, lower-priced cigarette formats or illicit products.
- Government commentary on GST/excise calibration, enforcement actions and legal cigarette tax collections.
- Gross-margin performance and FMCG profitability at ITC, which determine how much cigarette weakness affects consolidated earnings.
- Trade inventory levels and distributor commentary following the tax-driven retail price reset.
- Increase pack-price architecture and introduce smaller, lower-entry-price formats where regulations permit.
- Prioritize premium brands and non-cigarette FMCG categories to cushion cigarette-volume weakness.
- Tighten trade inventory management to prevent channel destocking from amplifying reported volume declines.
- Industry bodies are likely to seek tax rationalization and stronger anti-illicit enforcement from government.
- Use promotional mix, distribution expansion and product launches to retain adult smokers trading down within legal portfolios.