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ITC raises cigarette prices after VAT hike
September, 23rd 2011

A month after cigarette major ITC increased the price of its premium brand, Classic, the company has done the same to its mid-sized brands Wills Navy Cut.

The move follows an increase in value-added tax (VAT) on cigarettes in Andhra Pradesh from 14.5 per cent to 20 per cent.

neighbouring Tamil Nadu had also increased the VAT rate on cigarettes from 12.5 per cent to 20 per cent, which had prompted ITC to take up the price of Classic from Rs 50 to Rs 55 for a pack of 10. In between, West Bengal had included cigarettes in Schedule D of VAT brackets, where the effective rate is 30 per cent. "All this had prompted the increase in Navy Cut," said an ITC spokesperson.

Wills Navy Cut now costs Rs 44 for a pack of 10. This is a rise of 10 per cent over Rs 40. The jump in price of the Classic was also in the same range. But, the overall pricing action has helped ITC maintain a sizeable price difference between its various brands and its rivals. This avoids cannibalisation, say market experts.

For instance, with Classic at Rs 55, or Rs 110 for a pack of 20, Gold Flake Kings, another ITC brand, which competes in the same segment, can comfortably sit at Rs 96 for a pack of 20 or Rs 48 for a pack of 10.

While Wills Navy Cut does not have another ITC brand in the same segment, industry sources say the current move is significant. "The company could also increase the price of the Gold Flake portfolio given the way it has taken up the prices of Classic and Navy Cut," said a Mumbai-based fast moving consumer goods analyst.

Gold Flake, which straddles the premium and economy ends of the market, hasn't seen a price rise for some time now. Its portfolio contributes almost 43 per cent to ITC's cigarette revenues, followed by Navy Cut at 11 per cent and Classic at 10 per cent, respectively.

The balance 36 per cent, cumulatively, comes from brands such as Bristol, Capstan, Scissors, Burkley, Bensen & Hedges etc.

Gold Flake Kings, Classic and Marlboro are 84-millimetre-size brand, while Gold Flake Regular is 69 mm in size. Priced at Rs 98 for a pack of 20, Marlboro is marketed by Phillips Morris, which is a partner of Godfrey Phillips in India. Gold Flake Regular, on the other hand, competes with the latter's Four Square in the 69-mm segment.

But the price difference again is substantial. Gold Flake Regular is priced at Rs 38 for a pack of 10 to Four Square's Rs 29 for the same pack size. ITC's Bristol, in fact, is now a rupee less than Four Square at Rs 28 for a pack of 10.

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