Licensing cigarette importers won’t grow CTC’s bottom line
View(s):The proposal in the recent budget to license ‘illegal’ cigarette importers won’t directly impact Ceylon Tobacco Company’s (CTC) bottom lines positively in the near term, analysts say.
“It’s all about how the authorities aim to regulate the importers and the cost of the licence, etc,” an analyst told the Business Times.
CTC’s volumes were hit by between 20 to 35 per cent during the last three quarters, year-on-year. While some price increases helped during the initial two quarters, it didn’t contain the damage in the last one.
The company’s volumes for the year to date ending September 2017 declined by 28.7 per cent when compared to the same period last year, as a result of the legal market contracting due to the persistent pressure on the disposable income of consumers following the excise increase and introduction of VAT in the 4th quarter of 2016, the company has said.
“Unauthorised and illicit tobacco products continued to increase with over 2000 raids being carried out by law enforcement authorities during the year to date, resulting in the detection and seizure of over 40 million illicit cigarettes. The approximate illicit cigarette market is estimated to be over Rs. 360 million. This is driven by the gap between the price of legal and illicit products available in the market as well as current macroeconomic factors that are impacting consumer spending power,” CTC said in a statement. CTC’s cheapest locally manufactured cigarette is Capstan at Rs. 20.
Other operating expenses during the third quarter increased by 43 per cent compared to the same period in 2016. This is primarily attributed to the market investment committed behind the John Player brand house to address consumer affordability, as well as to safeguard both industry and government revenue. A new offer in the mid length segment – John Player Navy Cut, was launched in the first week of October this year.
CTC’s bottom line declined 12 per year on year to Rs. 3.94 billion, due to these over volumes.