From ‘Pajamas To Puffs’: Cigarette Demand Rises As Work From Home Era Fades

A recent report from Crisil Ratings has projected a substantial 7-9 per cent increase in cigarette demand during the current fiscal year. This boost is attributed to the return of a significant portion of the workforce to office spaces, coupled with a stable tax regime.

Cigarette volumes experienced a notable 18 per cent rebound in the previous fiscal year, recovering from the pandemic-induced downturn that impacted demand over the two preceding financial years, as highlighted in the Crisil Ratings report published on Thursday.

Looking ahead, the report suggests that volume growth is expected to align more closely with the long-term average of 5 per cent, reflecting the industry's stability.

ALSO READ: Not Virat Or Rohit, Suresh Raina Picks This Youngster As ‘Most Important’ Member Of India’s ODI World Cup Playing 11

Furthermore, the report anticipates that despite facing input cost pressures in the fiscal year 2024, cigarette manufacturers' profitability is likely to remain robust. Manufacturers are strategically focusing on premium cigarette products and implementing price hikes in select categories.

The report underscores that the healthy financial position of these manufacturers will continue to support their credit profiles. This assessment is based on an analysis of cigarette manufacturers that collectively account for over 90 per cent of the organised segment's sales volume.

Anand Kulkarni, a Director at Crisil Ratings, emphasised the significance of physical workplace occupancy in influencing cigarette volumes. He noted that physical office occupancy is projected to reach 65-70 per cent in the current fiscal year, a notable increase compared to the 40 per cent recorded in the previous fiscal year. Additionally, a stable tax regime, which substantially affects demand, is expected to contribute to this growth.

Despite a 16 per cent increase in the national calamity contingent duty on cigarettes in the fiscal year 2024 Union Budget, the report indicates that the cost impact on the industry is marginal, at just 1-2 per cent. Manufacturers have successfully passed on this impact to consumers through limited price hikes ranging from 3-5 per cent in mid-premium and premium cigarette categories.

The report also highlights cost pressures faced by cigarette manufacturers, particularly in terms of tobacco prices, which constitute 50-55 per cent of manufacturing costs. These prices have registered a compound annual growth of 20-25 per cent over the past three fiscal years and are expected to rise further in fiscal year 2024.

ALSO READ: India Asks Students In Canada To Seek Assistance From Consulate As Diplomatic Row Deepens

Rucha Narkar, an associate director at Crisil, explained that the rise in input costs is expected to marginally impact profitability by only 50-100 basis points in the current fiscal year. Operating margins are projected to remain around 65 per cent. Overall, the report anticipates that credit profiles within the industry will remain resilient, supported by minimal debt and robust liquidity, estimated at around Rs 22,000 crore as of March 2023.