Chewing tobacco has been a tradition in India for centuries. Of the total amount of tobacco produced in the country, around 48% is in the form of chewing tobacco, 38% as bidis, and only 14% as cigarettes. Thus, bidis, snuff and chewing tobacco (such as gutka, khaini and zarda) form the bulk (86%) of India's total tobacco production. In the rest of the world, production of cigarettes is 90% of total production of tobacco related products.
Despite being the third largest producer, India is only the ninth largest exporter of tobacco and tobacco products in the world. Out of the total tobacco produced in India, only one-third is flue-cured tobacco suitable for cigarette manufacturing. Most of the tobacco produce is suitable for the manufacture of chewing tobacco, bidis and other cheap tobacco products, which have no demand outside the country
The per capita consumption of cigarettes in India is merely a tenth of the world average. This unique tobacco consumption pattern is a combination of tradition and more importantly the tax imposed on cigarettes over the last 2 decades. Cigarette smokers pay almost 85% of the total tax revenues generated from tobacco.
MAJOR PLAYERS IN INDIA
In India, three major cigarette players dominate the market, primarily ITC with 72% market share, Godfrey Phillips with 12% and VST with 8% share of the market.
ITC Limited (ITC) is one of India's foremost private sector companies. ITC has a diversified presence in cigarettes, hotels, paperboards and specialty papers, packaging, agri-business, branded apparel, packaged foods and confectionery, greeting cards and other products. The company is headquartered in Kolkata, India. For the fiscal year ended March 2006 ITC Limited generated revenues of $2,914 million.
GODFREY PHILIPS INDIA LTD:
Godfrey Phillips India Ltd is one of India’s leading cigarette manufacturers. The company’s brands include Red and White, Four Square, Jaisalmer, Cavanders, Tipper and Prince. One of Godfrey Phillips major stakeholders is Philip Morris. It is headquartered in Delhi, India. In the fiscal year ended March 2006, Godfrey Phillips reported sales (net of excise) of $169 million, a 22% increase on the previous fiscal year.
VAZIR SULTAN TOBACCO COMPANY:
Vazir Sultan Tobacco Company is more commonly known as VST Industries and has collaboration with the BAT Group UK. The company manufactures and distributes cigarettes under the brands names of Charms, Charminar, and Gold. The company is headquartered in Hyderabad, India .
MARKET OVERVIEW & GOVERNMENTREGULATIONS
The Indian tobacco market generated total revenues of $9.9 billion in 2007, this representing a compound annual growth rate (CAGR) of 6.6% for the five-year period spanning 2003-2007.
The cigarette industry is expected to grow at a modest rate only of around 1 to 2% or less as a result of the government policies, growing public awareness against the product and the ever increasing tax levies. India's per capita consumption of tobacco is less than half of the global average of 0.8 kg to 1.8 kg (incidentally, China's is around 2.62 kg). The number of tobacco smokers in India is placed at 250 mn. Cigarettes, although an urban phenomenon, have steadily penetrated into the rural areas.
The Indian excise tariff on cigarettes is higher than the rates prevailing in other countries. High excise duties have resulted in the expansion of the cheaper non-cigarette tobacco segment. The government has made legislative interventions to curtail the use of tobacco products. It has prohibited sale of tobacco products within a distance of 100 metres of schools, educational institutions, hospitals and medical institutions and smoking in public places. It has also banned all forms of tobacco advertising and insists on statutory warning on all packages of tobacco products, as being injurious to health in a manner which makes it prominent and effective.
Organized cigarette sales in the country are declining but the tobacco consumption is rising. Cigarette sales in the organized sector declined by 4% between 1996-97 and 2001-02. Lately it is growing at around 1.5% to 2% a year. But contraband trade in cigarettes is said to be rising at a substantially high rate. Contraband's entry into the market is routed through Nepal and Bangladesh. Mumbai alone accounts for nearly half of all contraband cigarettes into the country.
The Indian tobacco market grew by 1.1% in 2006 to reach a volume of 99.1 billion sticks. The compound annual growth rate of the market volume in the period 2002-2006 was 2.6%.
ITC is the leading companies in the Indian tobacco market, holding a 72% share of the market's volume. Godfrey Philips accounts for a further 12% of the market's volume.