Tobacco Market in India Market to Develop New Growth Story: Emerging Segments is the Key

Market insights:
India is the second largest producer and third largest exporter of tobacco in the world. The tobacco industry provides employment to ~46 Mn people. With the evolving facilities provided by the Tobacco Board of India, the market has recorded a total (manufactured and unmanufactured tobacco) export of INR 60.84 Bn in FY 2018.
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Segment-wise market insights:
In India, tobacco is harvested mainly in two forms—cigarette tobacco and non-cigarette tobacco. During 2017-2018, non-cigarette tobacco alone had a ~69% market share. Manufacture of cigarette tobacco has significantly reduced, globally, leading to an increase in the sale of non-cigarette tobacco.
Based on consumption, khaini constituted ~11%, and beedi and cigarette had a market share of ~8%. Usage of smoking mediums like hookah, hookli, chhutta, dhumti and chillum, along with edible tobacco like mawa, snuff, gutka, and pan masala have led to the growth of this market.
Considering the consumption-tax revenue ratio of the overall segment of smoked tobacco, legal cigarettes account for ~10% of consumption and ~86% of tax revenues. This implies that even though smokeless tobacco has the highest rate of consumption, more revenue is earned from legal cigarettes. Tobacco, despite it triggering addiction and intoxication, is consumed significantly by Indians, especially in the form of smokeless tobacco.
Among the major cigarette producers in India, ITC Ltd. currently enjoys the highest market share (~84.27%), based on sale. Rest of the share is distributed among minor companies like Kothari Products Ltd., Godfrey Phillips India Ltd., VST Industries Ltd., and others.
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Market drivers:
• Over the years, tobacco has become an essential part of the Indian socio-cultural environment, especially in the eastern, northern, and north-eastern parts of the country. A relatively higher income growth compensates for the increasing price of cigarettes, leading to greater consumption. Moreover, societal influences such as peer pressure also aids in driving the demand for tobacco products. These are the crucial factors propelling market growth.
• With the assistance of the Tobacco Board, Indian tobacco producers are using technologically advanced threshing plants and re-drying factories. These facilities are used for increasing the yield of Flue-Cured Virginia (FCV) tobacco, which can then be exported to different countries, across the world. Hence, improved infrastructure drives growth for this market.
Market challenges:
• Cigarette taxes (64% excise duty, 28% GST, and 5% cess) in India are among the highest in the world. Therefore, high tax rates make cigarettes unaffordable to a large section of consumers. As a result, they shift towards the consumption of beedi and other forms of smokeless tobacco. Hence, the overall tobacco market experiences slow growth.
• The Cigarettes and Other Tobacco Products (Prohibition of Advertisement and Regulation of Trade and Commerce, Production, Supply and Distribution) Act of 2003 (COTPA, 2003) imposes a blanket ban on tobacco advertising. This prevents companies from directly advertising their products, because of which they resort to surrogate advertising. Hence, it becomes difficult for manufacturers to promote their brands, limiting the growth of the domestic market.
Companies covered: Ashok and Company Pan Bahar Ltd., Godfrey Phillips India Ltd., Golden Tobacco Company Ltd., ITC Ltd., Kothari Products Ltd., M.R. Tobacco Pvt. Ltd., National Tobacco Company of India Ltd., Pataka Industries Pvt. Ltd., Sinnar Bidi Udyog Ltd., VST Industries Ltd.
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