Cigarette volume rebounds to pre-pandemic levels unlikely this fiscal year: Crisil
After declining by 13-15% in the previous fiscal year, the volume of cigarette sales is expected to increase by 7-9% to reach 83 to 85 billion euros in this fiscal year, driven by the recovery in the market. out-of-home consumption, limited price hikes and a weaker base But that will not be enough to bring volume to pre-pandemic levels of 90 billion sticks seen in FY2020, as the second wave of Covid-19 infections moderated the upturn in demand, according to Crisil Ratings. Indeed, the segments of hotels, restaurants and cafes (Horeca) and workplaces that stimulate out-of-home consumption are unlikely to return to their pre-pandemic levels during the current fiscal year. Nonetheless, higher revenues and volumes, healthy operating profitability and strong balance sheets ensure healthy credit profiles for cigarette manufacturers, shows an analysis of four rated Crisil accounting for 90 percent of the industry’s volume. mm) and mini (64 mm and less).
Before the pandemic, the regular and mini segments contributed 40% and 43% respectively, while the premium segment contributed 17% to the overall volume. However, the pandemic had a larger impact on the volumes of premium king-size cigarettes, possibly due to lower prices caused by affected income levels and higher prices resulting from sharp increases in tariffs. excise in the 2020 Union budget. Crisil said the overall impact on sales volume this fiscal year will be less severe as personal mobility and manufacturing and distribution activities have not been as affected as during the first wave.
Moreover, in the absence of an increase in cigarette taxes in the Union budget for this fiscal year, prices are unchanged, which should support the recovery in volumes and stimulate revenue growth. In the last financial year, volume was affected in the first half of the year due to blockages which also hampered socialization. The biggest impact on consumption was the closing of offices and the reduction in the workforce at workplaces for most of the last fiscal year. Despite this, revenues fell only 5-7% as manufacturers passed on most of the 13% hike in excise duties introduced in the 2020 Union budget. Gautam Shahi, Director of Crisil Ratings said overall cigarette sales volume rebounded sharply to 95 percent from pre-pandemic levels in the fourth quarter of the previous fiscal year due to a return to near-normal. Then
came the second wave which is estimated to have reduced sales volume sequentially by 10 percent in the first quarter of this fiscal year. “Despite this, volume is expected to eventually increase this fiscal year (year-on-year) with mobility in the workplace, retail and leisure already improving to 63% of the level before the April pandemic. to July compared to 44% in the same period last year, “Shahi said. Domestic cigarette makers enjoy strong operating margins of 40 percent, which translates into strong cash flow.
Thus, despite moderately lower revenues and a lower contribution from the premium segment, cost reduction initiatives limited the decline in margins during the previous year. As revenues improve this fiscal year, operating margins are expected to be stable despite improved operating leverage, as promotion spending will return to pre-pandemic levels. Crisil said the main things to watch out for on the road are new waves of Covid-19 impacting demand and supply. for the rest of this taxation, stability of the tax system and regulation of tobacco consumption. (ANI)
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