Finance Minister Arun Jaitley has proposed a 25% increase in 65 mm cigarettes and 15% in other categories, which is more than what the market had anticipated.
Market leader, ITC's stock tumbled 8% on news of the steep hike. According to analysts, the excise increase was estimated to increase by 10%..
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Historically, the excise increase since 1997-2000 has been around 200 bps more than inflation. Since 2011, however, the increase has been at CAGR of 13% more than inflation, which led to lower excise collections in the December quarter.
However, what brought some relief to the company was that there was no announcement on ban on loose cigarettes. Loose cigarettes constitute around 70% of cigarettes sold in India and regulating it would have been near impossible as it involves monitoring 7-8 million outlets that retail cigarettes.