Weaker lungs fatten cigarette majors!



Weaker lungs fatten cigarette majors!
Rashi Aditi Ghosh and Rohit Joshi/Zee Research Group/Delhi

India’s effort to tame cigarette consumption appears to have gone up in smoke, with the country registering about five per cent increase in stick sales in 2011-12 on the back of healthy top line performance by cigarette majors like ITC and VST Industries. This is despite the government having launched a Rupees 29 crore campaign during the year to curb smoking.

According to the latest official estimates, cigarette sales went up by 4.19 per cent as in all 11617 crore cigarette sticks got sold during 2011-12. While there is no official estimate available of smokers in the country for 2011-12, the Global Adult Tobacco Survey, (GATS) Report, 2010, said that 14 per cent adults (24 per cent per cent men and 3per cent women) were smokers in India.

ITC, the leader in cigarette segment, witnessed a compounded annual growth rate (CAGR) of 15 per cent in cigarette segment revenues during the last three years. The cigarette segment contributes 50 percent to the conglomerate’s top line.

ITC’s cigarette revenue jumped from Rupees 10,573.67 crore in 2010-11 to Rupees 12,324.41 crore in 2011-12. Similarly, VST Industries too witnessed cigarette sales jump from Rupees 584.57 crore in 2010-11 to Rupees 684.63 crore in 2011-12.

Talking about the revenue growth trajectory of ITC’s cigarette segment, A K Prabhakar, Senior vice president, equity research, Anand Rathi Financial Services, predicted, “Growth is sustainable till the government implements stringent actions to curb smoking.” Psychologist Dr Samir Parikh, argued, “India lacks the sense of social responsibility, and this is one of the biggest reasons behind cigarette companies’ stupendous performance.”

However, Prabhakar at Anand Rathi, rose to ITC’s defense, asserting that, “ITC being the conglomerate has diversified itself in various segment and its other FMCG business too is performing well along with other segments.”
Dr. Vivek Nangia, a Pulmonologist at Fortis Hospital, said, “Smoking and tobacco consumption is related to lifestyle and peer pressure in India.” Prabhakar at Anand Rathi attributed the growing cigarette sales to “the increase in disposable income and changing lifestyle which lures individuals to switch from bidis to cigarette.”

According to a latest report by Indian Council of Medical Research (ICMR), almost 80-90per cent of oral cancers are associated with use of either chewing or smokeless tobacco. Tobacco consumption accounts for 50 per cent of all cancers among men in India and as per Tobacco Control in India (2004) data, 8-9 lakh deaths annually occurred in India owing to the consumption of cigarette and other forms of tobacco.

Referring to the inherent risks associated with smoking, Dr Nangia at Fortis said, “Besides cancer, cigarette smoking can also cause breathlessness, asthma, and heart diseases including cardiac arrest.”

The government, which spearheads the anti-smoking campaign, spent about Rs 58 crore during the last two years (2010-11 and 2011-12). The campaign highlight mandates companies to put the risk factor upfront on cigarette packs apart from barring sale in the vicinity of educational institutions, primarily schools.

Dr Parikh argued that while “Government can initiate measures but the implementation needs participation from citizens as well.” Or, else, smoking would thrive as a fad amongst youngsters, he warned.

Chart for visual support
Exhibit 1: Revenue growth of companies involved in Cigarette & tobacco business
Rs. Cr 2009-10 2010-11 2011-12 CAGR growth in last 3 years
ITC (Cigarette Revenues) 9321.15 10573.67 12324.41 15per cent
VST Industries 475.01 584.57 684.43 20per cent
 Please Note : Cigarette segment contributes 50 per cent to the ITC`s overall revenues